Half Year Report - 2023 Interim Report - Part 3

HSBC Holdings PLC

01 August 2023

 

Risk

Contents

61	Key developments in the first half of 2023
61	Areas of special interest
64	Credit risk
93	Treasury risk
103	Market risk
104	Insurance manufacturing operations risk

We recognise that the primary role of risk management is to protect our customers, business, colleagues, shareholders and the communities that we serve, while ensuring we are able to support our strategy and provide sustainable growth.

All our people are responsible for the management of risk, with the ultimate accountability residing with the Board. Our Group Risk and Compliance function, led by the Group Chief Risk and Compliance Officer, plays an important role in reinforcing our culture and values. We are focused on creating an environment that encourages our people to speak up and do the right thing.

Group Risk and Compliance is independent from the global businesses, including our sales and trading functions, to provide challenge, oversight and appropriate balance in risk/reward decisions.

We aim to use a comprehensive risk management approach across the organisation and across all risk types, underpinned by our culture and values. This is outlined in our risk management framework, including the key principles and practices that we employ in managing material risks, both financial and non-financial. The framework fosters continuous monitoring, promotes risk awareness, and encourages sound operational and strategic decision making. It also supports a consistent approach to identifying, assessing, managing and reporting the risks we accept and incur in our activities. We continue to actively review and develop our risk management framework and enhance our approach to managing risk through our activities with regard to: people and capabilities; governance; reporting and management information; credit risk management models; and data.

A summary of our current policies and practices regarding the management of risk is set out in the 'Risk management' section on pages 132 to 135 of the Annual Report and Accounts 2022.

Key developments in the first half of 2023

We continued to actively manage the risks related to macroeconomic and geopolitical uncertainties, as well as other key risks described in this section. In addition, we sought to enhance our risk management in the following areas:

-   We enhanced our management of concentration risk at country and single customer group levels by implementing new frameworks to strengthen our control of risk tolerance and appetite.

-   We have continued to strengthen our third-party risk policy and enhanced the way third-party risk is overseen and managed across all non-financial risks. Our processes, framework and reporting capabilities have been enhanced to improve the control and oversight of our material third parties, to help maintain our operational resilience and meet new and evolving regulatory requirements.

-   We continued to make progress with our comprehensive regulatory reporting programme to strengthen our global processes, improve consistency and enhance controls.

-   We continued our programme to enhance our framework for managing risks associated with machine learning and artificial intelligence ('AI').

-   Through our climate risk programme, we continued to embed climate considerations throughout the organisation, including enhancing our approach to assessing the impact of climate on capital, and continued the development of risk metrics to manage our exposure to climate risk.

-   We deployed industry-leading technology and advanced analytics capabilities into new markets to improve our ability to identify suspicious activities and prevent financial crime. We continue to monitor regulatory changes.

-   We continued to develop and enhance our electronic communication policies and standards, to help ensure escalations and follow-up actions can better focus on substantive issues.

Areas of special interest

During the first half of 2023, a number of areas were considered as part of our top and emerging risks because of the effect they have on the Group. In this section we have focused on risks related to geopolitical and macroeconomic risk and the interbank offered rate ('Ibor') transition.

Geopolitical and macroeconomic risk

The Russia-Ukraine war has had far-reaching geopolitical and economic implications. HSBC is monitoring the impacts of the war, and continues to respond to the significant sanctions and trade restrictions imposed against Russia by the UK, the US and the EU, as well as other countries. In response to such sanctions and trade restrictions, as well as to asset flight, Russia has implemented certain countermeasures. The global economy has largely adapted to the imposition of significant sanctions and trade restrictions, with European countries diversifying their energy sources to reduce their dependence on Russian energy supplies.

Further sanctions-related matters, including sanctions evasion by parties in third countries and Russian countermeasures may adversely impact the Group, its customers and the markets in which it operates. Our business in Russia, which principally serves multinational corporate clients headquartered in other countries, is not accepting new business or customers and is consequently on a declining trend. Following a strategic review in 2022, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc) entered into an agreement to sell its wholly-owned subsidiary HSBC Bank Russia (RR) (Limited Liability Company), subject to regulatory and governmental approvals.

Global supply chain disruptions caused by the war in Ukraine have eased, although inflation is likely to remain high in several regions as the demand for services remains relatively strong. This has prompted central banks to continue tightening monetary policies. Since the beginning of 2023, the US Federal Reserve Board ('FRB') has delivered a cumulative 75 basis point ('bps') increase in the Federal Funds rate. The European Central Bank and the Bank of England have each tightened their policy rates by 150 bps over the same period. All three central banks and their counterparts in other developed markets are expected to increase rates further in the near term. While the peak in rates may be getting closer, as of early-July 2023, interest-rate futures did not suggest that central banks in developed markets (with the possible exception of the FRB) will begin to ease monetary policy until well into 2024. This may change if inflation moderates more significantly than expected, or if recession concerns increase. Some central banks in emerging markets have already begun to ease on monetary policy.

Fiscal policies are likely to remain relatively generous in coming years as demand increases for public spending on items including social welfare, defence and decarbonisation initiatives. This may increasingly happen against a backdrop of slower growth, volatile energy prices and high interest rates. Financial markets are showing a degree of forbearance, with long-term yields relatively contained. However, this may be tested by the acceleration in the coming months of central bank sales of government securities accumulated over several years of quantitative easing. Sovereigns with high public debt burdens could come under renewed focus as investors question the sustainability of that debt. We continue to monitor our risk profile closely in the context of uncertainty over global macroeconomic policies.

Higher inflation and interest rate expectations around the world - and the resulting economic uncertainty - have had an impact on expected credit losses and other credit impairment charges ('ECL') during the first half of 2023. In certain markets, the combined pressure of higher inflation and interest rates may impact the ability of our customers to repay their debt. Our Central scenario, which has the highest probability weighting in our IFRS 9 'Financial Instruments' calculations of ECL, assumes low growth and a higher inflation environment across many of our key markets.

The Central scenario has been assigned our standard weighting across all of our major markets, reflecting narrowing forecast dispersion, reduced uncertainty, and a view that forecasts now sufficiently capture the weak growth outlook. Our approach to macroeconomic scenarios remained unchanged in 2Q23, but the shift in UK interest rate expectations in June resulted in updates to key scenario variables. There remains continued uncertainty with respect to the relationship between the economic drivers and the historical loss experience, which has required adjustments to modelled ECL in cases where we determined that our models were unable to capture the material underlying risks. For retail portfolios where models do not sufficiently capture the interest rate and inflation risks, there has been a globally consistent approach developed that is utilised for assessing the affordability pressure on potentially affected customers and the consequential impact this would have on ECL. This is incorporated into ECL via management judgemental adjustments.

For further details of our Central and other scenarios, see 'Measurement uncertainty and sensitivity analysis of ECL estimates' on page 69.

Given that key sectors of the global economy such as trade and manufacturing are underperforming, and the risk of recessions remains, the demand for Chinese exports may also diminish. While the mainland China commercial real estate market showed signs of recovery and stabilisation in early 2023, recent market data remains mixed, suggesting both an uncertain and protracted recovery. China's government policy measures relating to the mainland China commercial real estate market introduced in late 2022 have resulted in improved financial support for onshore borrowers, although offshore financial market conditions remain challenging in light of a continued shortage of liquidity. Corporates operating in this sector are therefore facing continued challenges and are becoming increasingly divided, with state-owned enterprises and certain privately-owned enterprises likely to see some improvements in their performances and allocations of investments and liquidity, while other entities may still remain subject to performance uncertainty and material market pressure. We will continue to monitor the sector closely, notably the risk of further credit migration and idiosyncratic defaults.

Global tensions over trade, technology and ideology are manifesting themselves in divergent regulatory standards and compliance regimes, presenting long-term strategic challenges for multinational businesses.

The US-China relationship remains complex. In addition to the US, the UK, the EU and other countries have also imposed certain sanctions and trade restrictions on Chinese persons and companies. There is a continued risk of additional sanctions and trade restrictions being imposed by the US and other governments in relation to human rights, advanced technology, and other issues with China, and this could create a more complex operating environment for the Group and its customers.

China has in turn announced a number of its own sanctions and trade restrictions that target, or provide authority to target, foreign individuals and companies, and materials for technology production.

These and any future measures and countermeasures that may be taken by the US, China and other countries may affect the Group, its customers and the markets in which the Group operates.

The conclusion of the Windsor Framework between the UK and the EU introduced a new system of checks on goods moving from the UK to Northern Ireland, and removed a major area of friction. On 27 June 2023, the UK and the EU also signed a memorandum of understanding on regulatory cooperation in financial services, potentially paving the way for closer coordination of policymaking for the sector.

Over the medium to long term, the UK's withdrawal from the EU may impact markets and increase economic risk, particularly in the UK, which could adversely impact our profitability and prospects for growth in this market. We are monitoring the situation closely, including the potential impacts on our customers. 

As the geopolitical landscape evolves, compliance by multinational corporations with their legal or regulatory obligations in one jurisdiction may be seen as supporting the law or policy objectives of that jurisdiction over another, creating additional compliance, reputational and political risks for the Group. We maintain dialogue with our regulators in various jurisdictions on the impact of legal and regulatory obligations on our business and customers.

It remains the Group's policy to comply with all applicable laws and regulations of all jurisdictions in which it operates, although geopolitical risks and tensions, and potential ambiguities in the Group's compliance obligations will continue to present challenges and risks for the Group. These could have a material adverse impact on the Group's business, financial condition, results of operations, prospects and strategy, as well as on the Group's customers.

Expanding data privacy, national security and cybersecurity laws in a number of markets could pose potential challenges to intra-Group data sharing. These developments may affect our ability to manage financial crime risks across markets due to limitations on cross-border transfers of personal information.

Ibor transition

Interbank offered rates ('Ibors') were previously used extensively to set interest rates on different types of financial transactions and for valuation purposes, risk measurement and performance benchmarking.

Following the UK's Financial Conduct Authority ('FCA') announcement in July 2017 that it would no longer continue to persuade or require panel banks to submit rates for the London interbank offered rate ('Libor') after 2021, we have been actively working to transition legacy contracts from Ibors to products linked to near risk-free replacement rates ('RFRs') or alternative reference rates.

The publication of sterling, Swiss franc, euro and Japanese yen Libor interest rate benchmarks, as well as Euro Overnight Index Average ('Eonia'), and two US dollar Libor settings ceased from the end of 2021. Following this, the publication of all remaining settings of US dollar Libor ceased from 30 June 2023. To support any remaining contracts referencing these benchmarks, the FCA has compelled the ICE Benchmark Administration Limited to publish the three-month sterling Libor setting using an alternative 'synthetic' methodology until 31 March 2024, and one-month, three-month and six-month US dollar Libor settings until 30 September 2024. We continue to support our customers in the transition of the limited number of outstanding contracts relying on 'synthetic' Libor benchmarks in line with these dates.

Our Ibor transition programme - which is tasked with the development of RFR products and the transition of legacy Ibor products - has implemented the required processes, technology and RFR product capabilities in support of the benchmark cessation events. As a result, the transition of the majority of legacy contracts was undertaken successfully throughout 1H23 with the remaining contracts expected to largely complete in 3Q23. Specifically, our derivatives portfolio was largely transitioned through clearing house conversion mechanisms, and the use of industry legal fall-back provisions at cessation, leaving a limited number of trades that continue to be discussed with customers. Our wholesale and private bank lending portfolios for both uncommitted and committed facilities have been repapered with client consent, albeit a small number of wholesale contracts will continue repapering activities until their first interest rate fixing date after cessation. Where applicable, our structured notes and certain MREL instruments of the Group are being transitioned in line with jurisdictional legislative solutions and through client and investor notification. In respect of HSBC's regulatory capital and other MREL instruments that include references to legacy Ibors (including indirect references) in their terms, HSBC expects to be able to remediate or mitigate these risks by the relevant calculation dates, which may occur post-cessation of the relevant Ibor. HSBC remains committed to seeking to remediate or mitigate relevant risks relating to Ibor-demise, as appropriate.

While the majority of our legacy contracts referencing demised Ibors have been transitioned, as a result of other demising benchmarks or remaining contracts, we continue to be exposed to, and actively monitor, risks including:

-   regulatory compliance and conduct risks, as the use of 'synthetic' Libor rates, transition of legacy contracts to RFRs or alternative rates, or sales of products referencing RFRs, may not deliver fair client outcomes; and

-   legal risk, as issues arising from the use of legislative solutions and from legacy contracts that the Group is unable to transition may result in unintended or unfavourable outcomes for clients and market participants, which could potentially increase the risk of disputes.

While the level of risk has diminished in line with our process implementation and continued transition of contracts, we will monitor these risks through the remainder of the transition of legacy contracts. Throughout 2023, we plan to continue to engage with our clients and investors to complete an orderly transition of contracts

that reference the remaining demising Ibors. Additionally, plans and policies are in place to help us to react to any future regulatory notification of the intention to demise an interest rate benchmark.

Financial instruments impacted by Ibor reform

Interest Rate Benchmark Reform Phase 2, the amendments to IFRSs issued in August 2020, represents the second phase of the IASB's project on the effects of interest rate benchmark reform. The amendments address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships.

Under these amendments, changes made to a financial instrument measured at other than fair value through profit or loss that are economically equivalent and required by interest rate benchmark reform, do not result in the derecognition or a change in the carrying amount of the financial instrument. Instead they require the effective interest rate to be updated to reflect the change in the interest rate benchmark. In addition, hedge accounting will not be discontinued solely because of the replacement of the interest rate benchmark if the hedge meets other hedge accounting criteria.

Financial instruments impacted by Ibor reform
	Financial instruments yet to transition to alternative benchmarks, by main benchmark
	USD Libor	GBP Libor	JPY Libor	Others1
At 30 Jun 2023	$m	$m	$m	$m
Non-derivative financial assets
Loans and advances to customers	22,805	154	-	6,571
Other financial assets	2,676	-	-	1,914
Total non-derivative financial assets2	25,481	154	-	8,485
Non-derivative financial liabilities
Financial liabilities designated at fair value	688	1,871	1,096	-
Debt securities in issue	2,410	-	-	-
Other financial liabilities	1,896	-	-	181
Total non-derivative financial liabilities	4,994	1,871	1,096	181
Derivative notional contract amount
Foreign exchange	389,263	-	-	16,322
Interest rate	787,566	-	-	181,389
Total derivative notional contract amount	1,176,829	-	-	197,711

At 31 Dec 2022
Non-derivative financial assets
Loans and advances to customers	49,632	262	-	7,912
Other financial assets	4,716	42	-	1,562
Total non-derivative financial assets2	54,348	304	-	9,474
Non-derivative financial liabilities
Financial liabilities designated at fair value	17,224	1,804	1,179	-
Debt securities in issue	5,352	-	-	-
Other financial liabilities	2,988	-	-	176
Total non-derivative financial liabilities	25,564	1,804	1,179	176
Derivative notional contract amount
Foreign exchange	140,223	-	-	7,337
Interest rate	2,208,189	68	-	186,952
Total derivative notional contract amount	2,348,412	68	-	194,289

1     Comprises financial instruments referencing other significant benchmark rates yet to transition to alternative benchmarks (euro Libor, SOR, THBFIX, MIFOR, Sibor, CDOR and TIIE). An announcement was made by the South African regulator during the first half of 2023 on the cessation of the Johannesburg interbank average rate ('JIBAR'). Therefore, JIBAR is also included in 'Others' during the current period.

2     Gross carrying amount excluding allowances for expected credit losses.

The amounts in the above table relate to HSBC's main operating entities where HSBC has material exposures impacted by Ibor reform, including in the UK, Hong Kong, France, the US, Mexico, Canada, Singapore, the UAE, Bermuda, Australia, Qatar, Germany, Thailand, India and Japan. The amounts provide an indication of the extent of the Group's exposure to the Ibor benchmarks that are due to be replaced. Amounts are in respect of financial instruments that:

-   contractually reference an interest rate benchmark that is planned to transition to an alternative benchmark;

-   have a contractual maturity date beyond the date by which the reference interest rate benchmark is expected to cease; and

-   are recognised on HSBC's consolidated balance sheet.

-  

Credit risk

64	Overview
64	Credit risk in the first half of 2023
65	Summary of credit risk
67	Stage 2 decomposition
68	Assets held for sale
69	Measurement uncertainty and sensitivity analysis of ECL estimates
77	Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers
80	Credit quality of financial instruments
81	Personal lending
83	Wholesale lending
86	Commercial real estate
89	Supplementary information

Overview

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

Credit risk in the first half of 2023

There were no material changes to credit risk policy in the first half of 2023.

A summary of our current policies and practices for the management of credit risk is set out in 'Credit risk management' on page 145 of the Annual Report and Accounts 2022.

At 30 June 2023, gross loans and advances to customers and banks of $1,072bn increased by $32.7bn, compared with 31 December 2022. This included favourable foreign exchange movements of $12.3bn.

Excluding foreign exchange movements, growth was driven by a $29.3bn increase in personal loans and advances to customers. This was partly offset by a $6.4bn decrease in wholesale loans and advances to customers and a $2.6bn decrease in loans and advances to banks.

The underlying increase in personal loans and advances to customers was driven mainly by an increase in France (up $22.3bn) due to our retail banking operations in France no longer being classified as assets held for sale. It also comprised increases in Hong Kong (up $4.4bn), in the UK (up $1.8bn), in Mexico (up $1.2bn) and in Australia (up $1.0bn) driven mainly by mortgage growth. These were partly offset by a decrease in Oman (down $1.2bn) from the reclassification of our business in the country into 'assets held for sale'.

The underlying decrease in wholesale loans and advances to customers was driven mainly by lower commercial real estate exposures in Hong Kong (down $8.3bn) and mainland China (down $1.5bn). It also comprised a decrease in Oman (down $2.1bn) from the reclassification of our business in the country into 'assets held for sale'. These were partly offset by increases in France (up $2.1bn) and in the UK (up $2.1bn). The increase in the UK included loans and advances to customers of $7.1bn from HSBC Innovation Bank Limited (formerly SVB UK).

At 30 June 2023, the allowance for ECL of $12.8bn increased by $0.2bn compared with 31 December 2022, including adverse foreign exchange movements of $0.1bn. The $12.8bn allowance comprised $12.3bn in respect of assets held at amortised cost, $0.4bn in respect of loan commitments and financial guarantees, and $0.1bn in respect of debt instruments measured at fair value through other comprehensive income ('FVOCI').

Excluding foreign exchange movements, the allowance for ECL in relation to loans and advances to customers increased by $0.1bn from 31 December 2022. This was attributable to:

-   a $0.1bn increase in wholesale loans and advances to customers, which included a $0.4bn increase driven by stage 3, offset by a $0.3bn decrease driven by stages 1 and 2; and

-   broadly unchanged allowances for ECL in personal loans and advances to customers across all stages.

In wholesale lending, mainland China's commercial real estate sector continued to deteriorate in 2023, resulting in new and additional stage 3 charges.

In personal lending, stable allowances reflected customer resilience during the period, despite significant inflationary pressures.

The Group ECL charge for the first six months of 2023 was $1.3bn, inclusive of recoveries. This was driven by higher stage 3 charges, notably in the Hong Kong commercial real estate sector, as well as continued economic uncertainty and inflationary pressures.

The ECL charge comprised: $0.5bn in respect of personal lending, of which the stage 3 charge was $0.3bn; and $0.8bn in respect of wholesale lending, of which the stage 3 and POCI charge was $0.7bn.

Summary of credit risk

The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9 are applied and the associated allowance for ECL.

The following tables analyse loans by industry sector and represent the concentration of exposures on which credit risk is managed. The allowance for ECL increased from $12.6bn at 31 December 2022 to $12.8bn at 30 June 2023.

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
	At 30 Jun 2023		At 31 Dec 2022
	Gross carrying/ nominal amount	Allowance for ECL1	Gross  carrying/ nominal amount	Allowance for ECL1
	$m	$m	$m	$m
Loans and advances to customers at amortised cost	971,296	(11,738)	935,008	(11,447)
-  personal	453,447	(3,026)	414,882	(2,870)
-  corporate and commercial	441,258	(8,401)	453,202	(8,320)
-  non-bank financial institutions	76,591	(311)	66,924	(257)
Loans and advances to banks at amortised cost	100,995	(74)	104,544	(69)
Other financial assets measured at amortised cost	960,249	(489)	954,934	(493)
-  cash and balances at central banks	307,734	(1)	327,005	(3)
-  items in the course of collection from other banks	10,649	-	7,297	-
-  Hong Kong Government certificates of indebtedness	42,407	-	43,787	-
-  reverse repurchase agreements - non-trading	258,056	-	253,754	-
-  financial investments	131,277	(27)	109,086	(20)
-  assets held for sale2	80,244	(402)	102,556	(415)
-  prepayments, accrued income and other assets3	129,882	(59)	111,449	(55)
Total gross carrying amount on-balance sheet	2,032,540	(12,301)	1,994,486	(12,009)
Loans and other credit-related commitments	649,526	(348)	618,788	(386)
-  personal	253,764	(25)	244,006	(27)
-  corporate and commercial	265,552	(301)	269,187	(340)
-  financial	130,210	(22)	105,595	(19)
Financial guarantees	18,882	(51)	18,783	(52)
-  personal	1,188	-	1,135	-
-  corporate and commercial	13,613	(47)	13,587	(50)
-  financial	4,081	(4)	4,061	(2)
Total nominal amount off-balance sheet4	668,408	(399)	637,571	(438)
	2,700,948	(12,700)	2,632,057	(12,447)
	Fair value	Memorandum allowance for ECL5	Fair  value	Memorandum allowance for ECL5
	$m	$m	$m	$m
Debt instruments measured at fair value through other comprehensive income ('FVOCI')	287,195	(125)	265,147	(126)

1     Total ECL is recognised in the loss allowance for the financial asset unless total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.

2     For further details on gross carrying amounts and allowances for ECL related to assets held for sale, see 'Assets held for sale' on page 68.

3     Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets', as presented within the consolidated balance sheet on page 110, includes both financial and non-financial assets.         

4     Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

5     Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change for expected credit losses and other credit impairment charges' in the income statement.

The following table provides an overview of the Group's credit risk by stage and industry, and the associated ECL coverage. The financial assets recorded in each stage have the following characteristics:

-   Stage 1: These financial assets are unimpaired and without a significant increase in credit risk for which a 12-month allowance for ECL is recognised.

-   Stage 2: A significant increase in credit risk has been experienced on these financial assets since initial recognition for which a lifetime ECL is recognised.

-   Stage 3: There is objective evidence of impairment and the financial assets are therefore considered to be in default or otherwise credit impaired for which a lifetime ECL is recognised.

-   POCI: Financial assets that are purchased or originated at a deep discount are seen to reflect the incurred credit losses on which a lifetime ECL is recognised.

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 30 June 2023
	Gross carrying/nominal amount1					Allowance for ECL					ECL coverage %
	Stage 1	Stage 2	Stage 3	POCI2	Total	Stage 1	Stage 2	Stage 3	POCI2	Total	Stage 1	Stage 2	Stage 3	POCI2	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	%	%	%	%	%
Loans and advances to customers at amortised cost	808,376	142,843	20,016	61	971,296	(1,106)	(3,269)	(7,338)	(25)	(11,738)	0.1	2.3	36.7	41.0	1.2
-  personal	391,701	58,160	3,586	-	453,447	(576)	(1,567)	(883)	-	(3,026)	0.1	2.7	24.6	-	0.7
-  corporate and commer-cial	345,116	80,274	15,807	61	441,258	(468)	(1,630)	(6,278)	(25)	(8,401)	0.1	2.0	39.7	41.0	1.9
-  non-bank financial institutions	71,559	4,409	623	-	76,591	(62)	(72)	(177)	-	(311)	0.1	1.6	28.4	-	0.4
Loans and advances to banks at amortised cost	99,623	1,288	84	-	100,995	(18)	(33)	(23)	-	(74)	-	2.6	27.4	-	0.1
Other financial assets measured at amortised cost	945,902	13,580	757	10	960,249	(96)	(147)	(237)	(9)	(489)	-	1.1	31.3	90.0	0.1
Loans and other credit-related commit-ments	610,072	37,849	1,605	-	649,526	(135)	(150)	(63)	-	(348)	-	0.4	3.9	-	0.1
-  personal	243,830	8,936	998	-	253,764	(22)	(1)	(2)	-	(25)	-	-	0.2	-	-
-  corporate and commer-cial	240,799	24,184	569	-	265,552	(105)	(137)	(59)	-	(301)	-	0.6	10.4	-	0.1
-  financial	125,443	4,729	38	-	130,210	(8)	(12)	(2)	-	(22)	-	0.3	5.3	-	-
Financial guarantees	16,135	2,535	212	-	18,882	(8)	(12)	(31)	-	(51)	-	0.5	14.6	-	0.3
-  personal	1,173	15	-	-	1,188	-	-	-	-	-	-	-	-	-	-
-  corporate and commer-cial	11,698	1,704	211	-	13,613	(7)	(10)	(30)	-	(47)	0.1	0.6	14.2	-	0.3
-  financial	3,264	816	1	-	4,081	(1)	(2)	(1)	-	(4)	-	0.2	100.0	-	0.1
At 30 Jun 2023	2,480,108	198,095	22,674	71	2,700,948	(1,363)	(3,611)	(7,692)	(34)	(12,700)	0.1	1.8	33.9	47.9	0.5

1     Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

2     Purchased or originated credit-impaired ('POCI').

Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 days past due ('DPD') and are transferred from stage 1 to stage 2.

The following disclosure presents the ageing of stage 2 financial assets by those less than 30 and greater than 30 DPD and therefore presents those financial assets classified as stage 2 due to ageing (30 DPD) and those identified at an earlier stage (less than 30 DPD).

Stage 2 days past due analysis at 30 June 2023
	Gross carrying/nominal amount				Allowance for ECL				ECL coverage %
	Stage 2	Up-to-date	1 to 29  DPD1,2	30 and > DPD1,2	Stage 2	Up-to-date	1 to 29  DPD1,2	30 and > DPD1,2	Stage 2	Up-to-date	1 to 29  DPD1,2	30 and > DPD1,2
	$m	$m	$m	$m	$m	$m	$m	$m	%	%	%	%
Loans and advances to customers at amortised cost	142,843	138,163	2,667	2,013	(3,269)	(2,761)	(261)	(247)	2.3	2.0	9.8	12.3
-  personal	58,160	55,633	1,656	871	(1,567)	(1,134)	(214)	(219)	2.7	2.0	12.9	25.1
-  corporate and commercial	80,274	78,356	1,006	912	(1,630)	(1,555)	(47)	(28)	2.0	2.0	4.7	3.1
-  non-bank financial institutions	4,409	4,174	5	230	(72)	(72)	-	-	1.6	1.7	-	-
Loans and advances to banks at amortised cost	1,288	1,286	-	2	(33)	(33)	-	-	2.6	2.6	-	-
Other financial assets measured at amortised cost	13,580	13,380	122	78	(147)	(126)	(7)	(14)	1.1	0.9	5.7	17.9

1     Days past due ('DPD').

2     The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2022
	Gross carrying/nominal amount1					Allowance for ECL					ECL coverage %
	Stage 1	Stage 2	Stage 3	POCI2	Total	Stage 1	Stage 2	Stage 3	POCI2	Total	Stage 1	Stage 2	Stage 3	POCI2	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	%	%	%	%	%
Loans and advances to customers at amortised cost	776,299	139,076	19,504	129	935,008	(1,092)	(3,488)	(6,829)	(38)	(11,447)	0.1	2.5	35.0	29.5	1.2
-  personal	362,677	48,866	3,339	-	414,882	(561)	(1,504)	(805)	-	(2,870)	0.2	3.1	24.1	-	0.7
-  corporate and commercial	351,885	85,492	15,696	129	453,202	(488)	(1,907)	(5,887)	(38)	(8,320)	0.1	2.2	37.5	29.5	1.8
-  non-bank financial institutions	61,737	4,718	469	-	66,924	(43)	(77)	(137)	-	(257)	0.1	1.6	29.2	-	0.4
Loans and advances to banks at amortised cost	102,723	1,739	82	-	104,544	(18)	(29)	(22)	-	(69)	-	1.7	26.8	-	0.1
Other financial assets measured at amortised cost	938,798	15,339	797	-	954,934	(95)	(165)	(233)	-	(493)	-	1.1	29.2	-	0.1
Loans and other credit-related commitments	583,383	34,033	1,372	-	618,788	(141)	(180)	(65)	-	(386)	-	0.5	4.7	-	0.1
-  personal	239,521	3,686	799	-	244,006	(26)	(1)	-	-	(27)	-	-	-	-	-
-  corporate and commercial	241,313	27,323	551	-	269,187	(111)	(166)	(63)	-	(340)	-	0.6	11.4	-	0.1
-  financial	102,549	3,024	22	-	105,595	(4)	(13)	(2)	-	(19)	-	0.4	9.1	-	-
Financial guarantees	16,071	2,463	249	-	18,783	(6)	(13)	(33)	-	(52)	-	0.5	13.3	-	0.3
-  personal	1,123	11	1	-	1,135	-	-	-	-	-	-	-	-	-	-
-  corporate and commercial	11,547	1,793	247	-	13,587	(5)	(12)	(33)	-	(50)	-	0.7	13.4	-	0.4
-  financial	3,401	659	1	-	4,061	(1)	(1)	-	-	(2)	-	0.2	-	-	-
At 31 Dec 2022	2,417,274	192,650	22,004	129	2,632,057	(1,352)	(3,875)	(7,182)	(38)	(12,447)	0.1	2.0	32.6	29.5	0.5

1     Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

2     Purchased or originated credit impaired ('POCI').

Stage 2 days past due analysis at 31 December 2022
	Gross carrying amount				Allowance for ECL				ECL coverage %
	Stage 2	Up-to-date	1 to 29 DPD1,2	30 and > DPD1,2	Stage 2	Up-to-date	1 to 29 DPD1,2	30 and > DPD1,2	Stage 2	Up-to-date	1 to 29 DPD1,2	30 and > DPD1,2
	$m	$m	$m	$m	$m	$m	$m	$m	%	%	%	%
Loans and advances to customers at amortised cost	139,076	134,680	2,410	1,986	(3,488)	(3,017)	(234)	(237)	2.5	2.2	9.7	11.9
-  personal	48,866	46,378	1,682	806	(1,504)	(1,080)	(214)	(210)	3.1	2.3	12.7	26.1
-  corporate and commercial	85,492	83,976	712	804	(1,907)	(1,860)	(20)	(27)	2.2	2.2	2.8	3.4
-  non-bank financial institutions	4,718	4,326	16	376	(77)	(77)	-	-	1.6	1.8	-	-
Loans and advances to banks at amortised cost	1,739	1,729	-	10	(29)	(29)	-	-	1.7	1.7	-	-
Other financial assets measured at amortised cost	15,339	15,103	140	96	(165)	(141)	(8)	(16)	1.1	0.9	5.7	16.7

1     Days past due ('DPD').

2     The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.

Stage 2 decomposition

The following table presents the stage 2 decomposition of gross carrying amount and allowances for ECL for loans and advances to customers. It also sets out the reasons why an exposure is classified as stage 2 and therefore presented as a significant increase in credit risk at 30 June 2023.

The quantitative classification shows gross carrying values and allowances for ECL for which the applicable reporting date probability of default ('PD') measure exceeds defined quantitative thresholds for retail and wholesale exposures, as set out in Note 1.2 'Summary of significant accounting policies', on page 342 of the Annual Report and Accounts 2022.

The qualitative classification primarily accounts for customer risk rating ('CRR') deterioration, watch-and-worry and retail management judgemental adjustments.

A summary of our current policies and practices for the significant increase in credit risk is set out in 'Summary of significant accounting policies' on page 342 of the Annual Report and Accounts 2022.

Loans and advances to customers at 30 June 20231
	Gross carrying amount				Allowance for ECL				ECL coverage
	Personal	Corporate and commercial	Non-bank financial institutions	Total	Personal	Corporate and commercial	Non-bank financial institutions	Total	Total
	$m	$m	$m	$m	$m	$m	$m	$m	%
Quantitative	48,337	63,306	3,667	115,310	(1,369)	(1,393)	(67)	(2,829)	2.5
Qualitative	9,756	16,454	717	26,927	(195)	(230)	(5)	(430)	1.6
30 DPD backstop2	67	514	25	606	(3)	(7)	-	(10)	1.7
Total stage 2	58,160	80,274	4,409	142,843	(1,567)	(1,630)	(72)	(3,269)	2.3

Loans and advances to customers at 31 December 20221
	Gross carrying amount				Allowance for ECL				ECL coverage
	Personal	Corporate and commercial	Non-bank financial institutions	Total	Personal	Corporate and commercial	Non-bank financial institutions	Total	Total
	$m	$m	$m	$m	$m	$m	$m	$m	%
Quantitative	41,610	66,421	3,679	111,710	(1,302)	(1,642)	(66)	(3,010)	2.7
Qualitative	7,209	18,555	878	26,642	(200)	(262)	(11)	(473)	1.8
30 DPD backstop2	47	516	161	724	(2)	(3)	-	(5)	0.7
Total stage 2	48,866	85,492	4,718	139,076	(1,504)	(1,907)	(77)	(3,488)	2.5

1     Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross exposure and ECL have been assigned in order of categories presented.

2     Days past due ('DPD').

Assets held for sale

At 30 June 2023, the most material balances held for sale came from our banking business in Canada. During the first half of 2023 the planned sale of our retail banking operations in France became less certain and no longer met the definition of held for sale.

'Loans and other credit-related commitments' and 'financial guarantees', as reported in credit disclosures, also include exposures and allowances relating to financial assets classified as 'assets held for sale'.

Loans and advances to customers and banks measured at amortised cost
	At 30 Jun 2023		At 31 Dec 2022
	Total gross loans and advances	Allowance for ECL	Total gross loans and advances	Allowance for ECL
	$m	$m	$m	$m
As reported	1,072,291	(11,812)	1,039,552	(11,516)
Reported in 'Assets held for sale'	60,739	(379)	81,221	(392)
Total	1,133,030	(12,191)	1,120,773	(11,908)

At 30 June 2023, gross loans and advances of our banking business in Canada were $56.3bn, and the related allowances for ECL were $0.2bn.

Lending balances held for sale continue to be measured at amortised cost less allowances for impairment and, therefore, such carrying amounts may differ from fair value.

These lending balances are part of associated disposal groups that are measured in their entirety at the lower of carrying amount and fair

value less costs to sell. Any difference between the carrying amount of these assets and their sales price is part of the overall gain or loss on the associated disposal group as a whole.

For further details of the carrying amount and the fair value at 30 June 2023 of loans and advances to banks and customers classified as held for sale, see Note 15 on the interim condensed financial statements.

Gross loans and allowance for ECL on loans and advances to customers and banks reported in 'Assets held for sale'
	Banking business in Canada		Retail banking operations in France		Other1		Total
	Gross carrying value	Allowance for ECL	Gross carrying value	Allowance for ECL	Gross carrying value	Allowance for ECL	Gross carrying value	Allowance for ECL
	$m	$m	$m	$m	$m	$m	$m	$m
Loans and advances to customers at amortised cost	56,178	(247)	-	-	3,410	(130)	59,588	(377)
-  personal	26,908	(87)	-	-	1,463	(61)	28,371	(148)
-  corporate and commercial	27,732	(155)	-	-	1,947	(69)	29,679	(224)
-  non-bank financial institutions	1,538	(5)	-	-	-	-	1,538	(5)
Loans and advances to banks at amortised cost	76	-	-	-	1,075	(2)	1,151	(2)
At 30 Jun 2023	56,254	(247)	-	-	4,485	(132)	60,739	(379)
Loans and advances to customers at amortised cost	55,431	(234)	25,121	(92)	412	(62)	80,964	(388)
-  personal	26,637	(75)	22,691	(88)	305	(47)	49,633	(210)
-  corporate and commercial	27,128	(154)	2,379	(4)	107	(15)	29,614	(173)
-  non-bank financial institutions	1,666	(5)	51	-	-	-	1,717	(5)
Loans and advances to banks at amortised cost	100	-	-	-	157	(4)	257	(4)
At 31 Dec 2022	55,531	(234)	25,121	(92)	569	(66)	81,221	(392)

1     Comprising assets held for sale relating to the planned merger of our business in Oman, and the planned sales of our branch operations in Greece and our business in Russia.

Measurement uncertainty and sensitivity analysis of ECL estimates

The recognition and measurement of ECL involves the use of significant judgement and estimation. We form multiple economic scenarios based on economic forecasts, apply these assumptions to credit risk models to estimate future credit losses, and probability-weight the results to determine an unbiased ECL estimate. Management judgemental adjustments are used to address late-breaking events, data and model limitations, model deficiencies and expert credit judgements.

At 30 June 2023, management recognised a reduction in uncertainty in most markets. It was management's view that the Central scenario sufficiently reflected the muted global economic environment and that the probability weightings assigned to this scenario for each of our major markets should increase and revert to the standard weight of 75%.

Methodology

At 30 June 2023, four economic scenarios were used to capture the current economic environment and to articulate management's view of the range of potential outcomes. Each scenario is updated with new forecasts and estimates each quarter.

The Upside, Central and Downside scenarios are drawn from external consensus forecasts, market data and distributional estimates of the entire range of economic outcomes.

The fourth scenario, the Downside 2, represents management's view of severe downside risks.

Economic scenarios produced to calculate ECL are aligned to HSBC's top and emerging risks.

In June 2023, following a significant shift in UK policy interest rate expectations, the Central scenario for the UK was updated and key economic and financial variables were updated. Outer scenario economic variables for the UK were changed in parallel with these Central scenario adjustments. 

Description of economic scenarios

In the Central scenario, global economic forecasts have improved since 1Q23. In western Europe and North America, GDP and employment have proved resilient to higher inflation and interest rates, as well as the failure of several US banks. In Hong Kong and mainland China, the post-pandemic reopening has led to a faster than expected improvement in growth and expectations, which has now been reflected in forecasts.

Stronger than expected growth means that inflation has declined at a slower pace than projected. For many markets, inflation forecasts have been raised. Further monetary tightening is also expected although interest rates are, in most markets, thought to be at, or close to, their peak. The UK and China are key exceptions.

In the UK, interest rates are expected to rise over the remainder of 2023. There remains uncertainty around the speed and extent of the increases, which may impose additional downside risks. In China, policy interest rates have been cut. 

The Upside and Downside scenarios are designed to encompass the potential crystallisation of a number of key macro-financial risks. Higher inflation, tighter monetary policy and financial conditions, and an escalation of geopolitical risks pose key downside risks to the outlook. To the upside, a swifter decline in inflation, a cut to interest rates and greater cooperation between the US and China on trade and investment are assumed to drive faster economic growth.

The scenarios used to calculate ECL are described below.

The consensus Central scenario

HSBC's Central scenario features a slowdown in GDP growth and a rise in unemployment across our major markets in 2023, relative to 2022, with the exception of Hong Kong and mainland China.

Global GDP forecasts have been raised in recent quarters due to stronger-than-expected growth in 1Q23, underpinned by resilience in household consumption. Nevertheless, the outlook for the remainder of 2023 and the beginning of 2024 remains subdued as high inflation continues to erode disposable income and curtail investment. In Hong Kong and mainland China, higher growth expectations reflect the removal of pandemic-related restrictions.

The Central scenario assumes that inflation gradually declines through 2023 and only reverts to central bank target ranges in 2025.

Global GDP is expected to grow by 2.0% in 2023 in the Central scenario. The average rate of global GDP growth is expected to be 2.6% over the forecast period, slightly below the 2.8% average five-year growth rate expectation prior to the onset of the pandemic.

Across the key markets, the Central scenario assumes the following:

-   GDP growth in mainland China is expected to continue at a rate above the official target of 5% in 2023, with policy stimulus offsetting headwinds from a weak property sector and lower external demand. In Hong Kong, the resumption of international travel and tourism, and the recovery in mainland China are expected to sustain the rapid rebound in GDP, led by the services sector and high employment.

-   In the UK, persistently high inflation and wage growth have caused a significant reappraisal of interest rate expectations. A substantially higher terminal rate for interest rates implies a bigger impact on confidence, discretionary income and investment. We have sought to reflect this in an updated Central scenario, which incorporates a recession for the UK that begins in the second half of 2023 and persists into 2024.

-   In the remainder of western Europe and North America, economic growth is expected to slow in the second half of 2023, as tighter monetary policy and elevated inflation squeeze corporate margins and households' real disposable income. Tighter financial conditions are expected to weigh on credit growth.

-   Unemployment is expected to rise gradually in most of our key markets from 2022 levels as economic growth slows. It is forecast to fall in mainland China and Hong Kong as the economic recovery continues.

-   Inflation is expected to remain above central bank targets in our key markets in 2023 as core inflation and food prices remain high. Inflation is subsequently expected to converge back to central bank targets over the next two years of the forecast. Mainland China is expected to be an exception as inflation remains low throughout the forecast horizon.

-   Policy interest rates in key markets are expected to peak later this year following rapid tightening cycles over the past 18 months to bring inflation rates back towards their targets. Thereafter, they are expected to fall slowly and remain at higher levels than they were pre-pandemic. In the UK, policy interest rates are forecast to rise until the end of the year and remain high for an extended period of time.

-   The Brent crude oil price is expected to average $77 per barrel in 2023, before dropping back as demand weakens. Over the entire projection the oil price is expected to average $69 per barrel.

The Central scenario was created from consensus forecasts available in May, and market-based projections updated in June. For the UK, significant UK variables, including GDP, unemployment and policy rates were updated in late June.

The following table describes key macroeconomic variables in the consensus Central scenario.

Consensus Central scenario
	UK	US	Hong Kong	Mainland China	Canada	France	UAE	Mexico
GDP (annual average growth rate, %)
2023	0.0	1.0	4.5	5.4	1.2	0.5	3.2	1.9
2024	(0.6)	0.9	3.2	4.9	1.0	1.0	3.8	1.7
2025	1.0	2.2	2.7	4.7	2.2	1.5	4.1	2.2
2026	1.6	2.1	2.6	4.6	2.0	1.6	3.7	2.2
2027	1.4	2.0	2.5	4.3	1.9	1.5	3.3	2.2
5-year average1	0.8	1.7	3.1	4.6	1.7	1.3	3.6	2.0
Unemployment rate (%)
2023	4.2	3.9	3.3	5.2	5.7	7.4	2.9	3.3
2024	4.7	4.6	3.2	5.1	6.1	7.4	2.6	3.6
2025	4.5	4.4	3.3	5.1	6.0	7.2	2.4	3.5
2026	4.4	4.2	3.2	5.1	5.8	7.3	2.4	3.5
2027	4.5	4.1	3.3	5.0	5.7	7.0	2.3	3.5
5-year average1	4.5	4.3	3.3	5.1	5.9	7.2	2.5	3.5
House prices (annual average growth rate, %)
2023	(1.3)	1.3	(6.4)	(2.0)	(12.9)	0.7	11.1	10.2
2024	(5.7)	1.1	0.4	5.5	(3.1)	0.6	4.4	5.3
2025	(1.9)	2.8	1.8	3.8	4.1	3.1	4.5	4.3
2026	3.2	2.6	3.0	2.9	2.8	3.8	3.9	4.0
2027	2.7	2.8	3.3	3.6	0.6	3.7	3.3	3.9
5-year average1	(0.6)	2.2	1.8	3.5	(0.1)	2.5	4.5	4.8
Inflation (annual average growth rate, %)
2023	7.5	4.3	2.4	1.8	3.7	5.3	3.4	5.9
2024	2.8	2.6	2.3	2.3	2.2	2.6	2.2	4.2
2025	1.8	2.2	2.1	2.1	2.0	1.9	2.1	3.7
2026	1.9	2.2	2.2	2.1	2.0	1.9	2.1	3.6
2027	2.1	2.2	2.3	2.0	2.0	1.9	2.1	3.6
5-year average1	2.5	2.4	2.3	2.1	2.2	2.3	2.2	3.9

1   The five-year average is calculated over a projected period of 20 quarters from 3Q23 to 2Q28.

The graphs compare the respective Central scenario with current economic expectations beginning in the second quarter of 2023.

GDP growth: Comparison of Central scenarios

UK

Note: Real GDP shown as year-on-year percentage change.

Hong Kong

Note: Real GDP shown as year-on-year percentage change.

US

Note: Real GDP shown as year-on-year percentage change.

Mainland China

Note: Real GDP shown as year-on-year percentage change.

The consensus Upside scenario

The consensus Upside scenario features stronger growth, lower unemployment and a faster fall in inflation compared with the Central

scenario. Asset prices, including housing, also rise more quickly in this scenario. Other upside risk themes include a de-escalation of geographical tensions and looser financial conditions.

The following table describes key macroeconomic variables in the consensus Upside scenario.

Consensus Upside scenario (3Q23-2Q28)
	UK		US		Hong Kong		Mainland China		Canada		France		UAE		Mexico
GDP level (%, start-to-peak)1	8.7	(2Q28)	14.7	(2Q28)	22.5	(2Q28)	33.3	(2Q28)	15.2	(2Q28)	10.1	(2Q28)	28.8	(2Q28)	17.3	(2Q28)
Unemployment rate (%, min)2	3.0	(2Q25)	3.0	(1Q24)	2.5	(2Q24)	4.6	(1Q24)	5.1	(2Q25)	6.2	(2Q25)	1.8	(2Q25)	2.8	(1Q24)
House price index (%, start-to-peak)1	5.7	(2Q28)	22.1	(2Q28)	17.2	(2Q28)	27.2	(2Q28)	13.7	(2Q28)	17.1	(2Q28)	28.3	(2Q28)	31.2	(2Q28)
Inflation rate (YoY % change, min)3	1.0	(2Q24)	1.3	(2Q24)	0.4	(2Q24)	0.6	(3Q24)	1.0	(3Q24)	1.4	(3Q24)	1.1	(3Q24)	2.8	(3Q24)

1     Cumulative change to the highest level of the series during the 20-quarter projection.

2          Lowest projected unemployment rate in the scenario.

3     Lowest projected year-on-year percentage change in inflation in the scenario.

Downside scenarios

Downside scenarios explore the intensification and crystallisation of a number of key economic and financial risks. High inflation and the monetary policy response to it remain key concerns for global growth. While supply chain disruptions caused by the Covid-19 pandemic and the Russia-Ukraine war are easing, helping to reduce headline price inflation across many markets, core inflation remains high. This reflects tight labour markets, which is putting upward pressure on wages, and resilience in demand. In turn, it raises the risk of a more forceful policy response from central banks, encompassing a steeper trajectory for interest rates, a higher terminal rate and ultimately, economic recession.

The rapid increase in interest rates has already led to a repricing of asset valuations, as corporate and household borrowers face steep increases in debt service costs. Policymakers have also raised

concerns that, following the collapse of several US regional banks, financial conditions could tighten further, acting as another constraint on activity. Insolvencies and default rates could rise sharply as businesses find it difficult to refinance, and cash buffers diminish amid weaker demand.

In addition, mainland China's recovery from the pandemic may be weaker than expected, with negative implications for global growth and Hong Kong in particular. 

In the consensus Downside scenario, economic activity is considerably weaker compared with the Central scenario, driven by an intensification of geopolitical risks that aggravate supply chain disruptions and cause global energy and other commodity prices to rise. In this scenario, the economies of our key markets experience moderate recession, unemployment rates increase, and asset prices fall.

The following table describes key macroeconomic variables in the consensus Downside scenario.

Consensus Downside scenario (3Q23-2Q28)
	UK		US		Hong Kong		Mainland China		Canada		France		UAE		Mexico
GDP level (%, start-to-trough)1	(3.2)	(3Q25)	(3.1)	(1Q24)	(2.4)	(1Q24)	(1.2)	(4Q23)	(3.3)	(1Q24)	(0.4)	(2Q24)	0.0	(3Q23)	(2.2)	(1Q24)
Unemployment rate (%, max)2	6.2	(4Q24)	6.1	(3Q24)	5.0	(2Q25)	6.3	(4Q24)	7.5	(1Q24)	8.5	(1Q24)	3.9	(1Q24)	4.4	(2Q24)
House price index (%, start-to-trough)1	(16.6)	(2Q25)	(2.6)	(1Q24)	(2.9)	(4Q23)	1.0	(3Q23)	(16.1)	(3Q24)	(1.3)	(2Q24)	(1.9)	(4Q23)	1.4	(3Q23)
Inflation rate (YoY % change, max)3	7.0	(3Q23)	4.1	(4Q23)	4.0	(2Q24)	4.3	(1Q24)	3.9	(1Q24)	5.6	(3Q23)	3.9	(4Q23)	6.6	(2Q24)

1     Cumulative change to the lowest level of the series during the 20-quarter projection.

2     The highest projected unemployment rate in the scenario.

3     The highest projected year-on-year percentage change in inflation in the scenario.

Downside 2 scenario

The Downside 2 scenario features a deep global recession and reflects management's view of the tail of the economic risk distribution. It incorporates the simultaneous crystallisation of a number of risks. The narrative features an escalation in geopolitical

tensions, which leads to further disruptions to supply chains. This creates additional upward pressure on inflation, prompting central banks to keep interest rates higher than in the Central scenario. However, demand subsequently falls sharply and unemployment rises before inflation pressures begin to subside.

The following table describes key macroeconomic variables in the Downside 2 scenario.

Downside 2 scenario (3Q23-2Q28)
	UK		US		Hong Kong		Mainland China		Canada		France		UAE		Mexico
GDP level (%, start-to-trough)1	(7.7)	(4Q24)	(4.3)	(2Q24)	(6.9)	(3Q24)	(8.3)	(2Q24)	(5.9)	(4Q24)	(7.1)	(3Q24)	(5.4)	(4Q24)	(8.9)	(4Q24)
Unemployment rate (%, max)2	9.0	(4Q24)	9.6	(2Q25)	6.3	(2Q24)	6.8	(2Q25)	12.2	(4Q24)	10.0	(3Q25)	4.4	(1Q24)	5.7	(4Q24)
House price index (%, start-to-trough)1	(40.8)	(3Q25)	(15.3)	(2Q24)	(16.1)	(4Q26)	(21.4)	(2Q25)	(45.1)	(2Q25)	(12.1)	(4Q25)	(4.8)	(4Q24)	1.3	(3Q23)
Inflation rate (YoY % change, max)3	10.3	(4Q23)	4.5	(4Q23)	4.5	(2Q24)	5.3	(1Q24)	5.0	(4Q23)	9.9	(4Q23)	4.4	(4Q23)	6.9	(2Q24)

1     Cumulative change to the lowest level of the series during the 20-quarter projection.

2      The highest projected unemployment rate in the scenario.

3      The highest projected year-on-year percentage change in inflation in the scenario.

Scenario weightings

In reviewing the economic situation, as well as the level of uncertainty and risk, management has considered both global and country-specific factors. This has led management to assigning scenario probabilities that are tailored to its view of uncertainty in individual markets.

In 2Q23, the level of certainty attached to the Central scenario was assessed to have increased compared with previous quarters. It was noted that:

-   the dispersion of external economic forecasts had narrowed;

-   there has been stabilisation of a number of key risk drivers; and

-   the current Central scenario forecasts were sufficiently reflective of weak GDP growth prospects.

As a result, it was decided that having previously reduced the probability weights assigned to the Central scenario for each of our major markets, the weightings should increase and revert to the standard weight of 75%.

Scenario weightings for Hong Kong and mainland China, are now aligned to the consensus probability distribution. The upside potential in other major markets is considered to be limited by current inflation and monetary policy trends. Management therefore assigned only 5% to the Upside scenario in these markets. The remaining 20% weighting is assigned across our two Downside scenarios to reflect the continued downside risks posed by inflation and monetary policy.

For the UK, uncertainty generated by shifting interest rate expectations was addressed with revisions to scenario variables.

The weighting assigned to the UK Central scenario therefore aligns to the standard weight.

The following table describes the probabilities assigned in each scenario.

Scenario weightings, %
	Standard weights	UK	US	Hong Kong	Mainland China	Canada	France	UAE	Mexico
2Q23
Upside	10.0	5.0	5.0	10.0	10.0	5.0	5.0	5.0	5.0
Central	75.0	75.0	75.0	75.0	75.0	75.0	75.0	75.0	75.0
Downside	10.0	15.0	15.0	10.0	10.0	15.0	15.0	15.0	15.0
Downside 2	5.0	5.0	5.0	5.0	5.0	5.0	5.0	5.0	5.0
4Q22
Upside	10.0	5.0	5.0	20.0	20.0	5.0	5.0	5.0	5.0
Central	75.0	60.0	70.0	55.0	55.0	70.0	60.0	70.0	70.0
Downside	10.0	25.0	20.0	20.0	20.0	15.0	25.0	20.0	20.0
Downside 2	5.0	10.0	5.0	5.0	5.0	10.0	10.0	5.0	5.0

The following graphs show the historical and forecasted GDP growth rate for the various economic scenarios in our four largest markets.

US

UK

Hong Kong

Mainland China

Note: Real GDP shown as year-on-year percentage change.

Critical accounting estimates and judgements

The calculation of ECL under IFRS 9 involved significant judgements, assumptions and estimates at 30 June 2023. These included:

-   the selection of economic scenarios, given rapidly changing economic conditions and a wide distribution of economic forecasts; and

-   estimating the economic effects of those scenarios on ECL, particularly the effect of interest rates and inflationary pressures on specific sectors.

How economic scenarios are reflected in ECL calculations

The methodologies for the application of forward economic guidance into the calculation of ECL for wholesale and retail portfolios are set out on page 158 of the Annual Report and Accounts 2022. Models are used to reflect economic scenarios on ECL estimates. These models are based largely on historical observations and correlations with default.

Economic forecasts and ECL model responses to these forecasts are subject to a degree of uncertainty. The models continue to be supplemented by management judgemental adjustments where required.

Management judgemental adjustments

In the context of IFRS 9, management judgemental adjustments are typically increases or decreases to the modelled ECL at either a customer, segment or portfolio level to account for late-breaking events, model and data limitations and deficiencies, and expert credit judgement applied during management review and challenge. These include refining model inputs and outputs, and using adjustments to ECL based on management judgement and higher levels of quantitative analysis for impacts that are difficult to model. The effects of management judgemental adjustments are considered for both balances and ECL, and will consider any changes to stage allocation where appropriate. This is in accordance with the internal adjustments framework.

The wholesale and retail management judgemental adjustments are presented as part of the internal review and challenge committees, and are subject to a further second line review, where significant. This is in line with the governance process for IFRS 9 as set out on page 145 of the Annual Report and Accounts 2022. We have internal governance in place to monitor management judgemental adjustments regularly and, where possible, to reduce the reliance on these through model recalibration or redevelopment, as appropriate.

The drivers of management judgemental adjustments continue to evolve with the economic environment as new risks emerge.

At 30 June 2023, management judgemental adjustments reduced by $0.6bn compared with 31 December 2022. Adjustments reflected macroeconomic uncertainty at a portfolio and sector level, and operational limitations.

Management judgemental adjustments made in estimating the reported ECL at 30 June 2023 are set out in the following table.

Management judgemental adjustments to ECL at 30 June 20231
	Retail	Wholesale	Total
	$bn	$bn	$bn
Banks, sovereigns, government entities and low-risk counterparties		(0.1)	(0.1)
Corporate lending adjustments		-	-
Retail lending inflation-related adjustments	0.1		0.1
Other macroeconomic-related adjustments			-
Other retail lending adjustments	0.2		0.2
Total	0.3	(0.1)	0.2

Management judgemental adjustments to ECL at 31 December 20221
	Retail	Wholesale	Total
	$bn	$bn	$bn
Banks, sovereigns, government entities and low-risk counterparties		-	-
Corporate lending adjustments		0.5	0.5
Retail lending inflation-related adjustments	0.1		0.1
Other macroeconomic-related adjustments	0.1		0.1
Other retail lending adjustments	0.2		0.2
Total	0.3	0.5	0.8

1     Management judgemental adjustments presented in the table reflect increases or (decreases) to modelled ECL, respectively.

In the wholesale portfolio, management judgemental adjustments were a decrease to modelled ECL of $50m (31 December 2022: $0.5bn increase).

-   Adjustments to sovereigns, government entities and low-risk counterparties were a decrease to modelled ECL of $83m at 30 June 2023 (31 December 2022: $22m increase), mostly to reflect amendments to data and management judgemental adjustments to reflect geopolitical uncertainty and late-breaking events.

-   Adjustments to corporate exposures increased modelled ECL by $33m at 30 June 2023 (31 December 2022: $0.5bn increase). These included an increase to modelled ECL of $190m, mostly due to management judgements to reflect heightened uncertainty in specific sectors and geographies, including adjustments to exposures to the real estate sector in mainland China and the US, and offsetting adjustments to specific sectors in the UK.
Management judgemental adjustments were offset by a decrease to modelled ECL of $157m to adjust for amendments to data and known model limitations. The decrease in the adjustments compared with 31 December 2022 reflected a crystallisation of downgrades and defaults for high-risk exposures, and the effect of offsetting adjustments.

In the retail portfolio, management judgemental adjustments were an increase to modelled ECL of $0.3bn at 30 June 2023 (31 December 2022: $0.3bn increase).

-   Inflation-related adjustments increased ECL by $0.1bn (31 December 2022: $0.1bn). These adjustments addressed where country-specific inflation risks were not fully captured by the modelled output.

-   Other retail lending adjustments increased ECL by $0.2bn (31 December 2022: $0.2bn increase), reflecting operational, data and model adjustments.

-  

Economic scenarios sensitivity analysis of ECL estimates

Management considered the sensitivity of the ECL outcome against the economic forecasts as part of the ECL governance process by recalculating the ECL under each scenario described above for selected portfolios, applying a 100% weighting to each scenario in turn. The weighting is reflected in both the determination of a significant increase in credit risk and the measurement of the resulting ECL.

The ECL calculated for the Upside and Downside scenarios should not be taken to represent the upper and lower limits of possible ECL outcomes. The impact of defaults that might occur in the future under different economic scenarios is captured by recalculating ECL for loans at the balance sheet date.

There is a particularly high degree of estimation uncertainty in numbers representing tail risk scenarios when assigned a 100% weighting.

For wholesale credit risk exposures, the sensitivity analysis excludes ECL and financial instruments related to defaulted (stage 3) obligors. The measurement of stage 3 ECL is relatively more sensitive to credit factors specific to the obligor than future economic scenarios, and therefore the effect of macroeconomic factors are not necessarily the key consideration when performing individual assessments of ECL for obligors in default. Loans to defaulted obligors are a small portion of the overall wholesale lending exposure, even if representing the majority of the allowance for ECL. Due to the range and specificity of

the credit factors to which the ECL is sensitive, it is not possible to provide a meaningful alternative sensitivity analysis for a consistent set of risks across all defaulted obligors.

For retail credit risk exposures, the sensitivity analysis includes ECL for loans and advances to customers related to defaulted obligors. This is because the retail ECL for secured mortgage portfolios, including loans in all stages, is sensitive to macroeconomic variables.

Wholesale and retail sensitivity

The wholesale and retail sensitivity analysis is stated inclusive of management judgemental adjustments, as appropriate to each scenario and scope of sensitivity. The results tables exclude portfolios held by the insurance and private banking businesses and small portfolios, and as such cannot be directly compared with personal and wholesale lending presented in other credit risk tables. In both the wholesale and retail analysis, the comparative period results for Downside 2 scenarios are also not directly comparable with the current period, because they reflect different risks relative to the consensus scenarios for the period end.

For both retail and wholesale portfolios, the gross carrying amount and nominal amount of financial instruments are the same under each scenario. For exposures with similar risk profile and product characteristics, the sensitivity impact is therefore largely the result of changes in macroeconomic assumptions.

Wholesale analysis

IFRS 9 ECL sensitivity to future economic conditions1,2
	Gross carrying and nominal amount	Reported ECL	Consensus Central scenario ECL	Consensus Upside scenario ECL	Consensus Downside scenario ECL	Downside 2 scenario ECL
By geography at   30 Jun 2023	$m	$m	$m	$m	$m	$m
UK	424,186	940	811	587	1,098	2,965
US	196,193	295	263	258	359	755
Hong Kong	430,282	609	565	395	866	1,325
Mainland China	123,776	236	188	106	347	1,265
Canada3	83,083	94	74	50	127	540
Mexico	28,445	69	63	49	86	232
UAE	48,637	26	25	21	31	47
France	166,451	74	70	61	86	106

By geography at     31 Dec 2022
UK	421,685	769	624	484	833	2,240
US	190,858	277	241	227	337	801
Hong Kong	415,875	925	819	592	1,315	2,161
Mainland China	125,466	295	242	144	415	1,227
Canada3	83,274	126	80	60	148	579
Mexico	26,096	88	80	67	116	313
UAE	45,064	45	41	30	55	93
France	173,146	110	102	90	121	145

1     ECL sensitivity includes off-balance sheet financial instruments that are subject to significant measurement uncertainty.

2     Includes low credit-risk financial instruments such as debt instruments at FVOCI, which have high carrying amounts but low ECL under all the above scenarios.

3     Classified as 'assets held for sale' at 31 December 2022 and 30 June 2023.

At 30 June 2023, the highest level of 100% scenario-weighted ECL was observed in the UK and Hong Kong. This higher ECL impact was largely driven by significant exposure in these regions. In the wholesale portfolio, off-balance sheet financial instruments have a lower likelihood to be fully converted to a funded exposure at the point of default, and consequently the ECL sensitivity impact is lower in relation to its nominal amount when compared with an on-balance sheet exposure with similar risk profile.

Compared with 31 December 2022, the Downside 2 ECL impact was higher in the UK and lower in Hong Kong. In the UK, the increase in the Downside 2 ECL impact was mostly reflective of the heightened macroeconomic uncertainty driven by the high inflation and interest rate environment. In Hong Kong, the reduction in the Downside 2 ECL impact reflected the crystallisation of defaults for certain high-risk exposures and decrease of the associated downside uncertainty.

Retail analysis

IFRS 9 ECL sensitivity to future economic conditions1
	Gross carrying amount	Reported ECL	Consensus Central scenario ECL	Consensus Upside scenario ECL	Consensus Downside  scenario ECL	Downside 2 scenario ECL
By geography at 30 Jun 2023	$m	$m	$m	$m	$m	$m
UK
Mortgages	157,016	214	201	195	215	421
Credit cards	6,958	428	418	365	433	702
Other	8,156	403	374	272	452	727
Mexico
Mortgages	7,937	172	158	124	225	340
Credit cards	2,039	233	220	154	297	365
Other	4,110	494	479	400	557	629
Hong Kong
Mortgages	102,533	-	-	-	-	1
Credit cards	8,249	268	254	216	385	496
Other	6,418	95	92	80	110	129
UAE
Mortgages	2,048	40	40	39	40	41
Credit cards	437	39	36	18	67	86
Other	700	19	17	11	24	29
France
Mortgages	21,112	51	50	50	51	52
Other	1,390	49	48	47	50	53
US
Mortgages	13,854	10	10	9	10	14
Credit cards	209	21	20	18	22	26
Canada2
Mortgages	25,353	60	58	56	64	99
Credit cards	307	10	10	9	12	12
Other	1,383	13	12	11	16	44

By geography at 31 Dec 2022
UK
Mortgages	147,306	204	188	183	189	399
Credit cards	6,518	455	434	396	442	719
Other	7,486	368	333	274	383	605
Mexico
Mortgages	6,319	152	127	102	183	270
Credit cards	1,616	198	162	97	233	289
Other	3,447	438	400	318	503	618
Hong Kong
Mortgages	100,107	1	1	-	1	1
Credit cards	8,003	261	227	180	417	648
Other	5,899	85	81	74	100	123
UAE
Mortgages	2,170	37	37	36	38	38
Credit cards	441	41	37	21	68	86
Other	718	17	17	15	19	22
France
Mortgages	21,440	51	50	50	51	52
Other	1,433	54	53	52	55	59
US
Mortgages	13,489	7	6	6	8	15
Credit cards	219	26	25	23	27	36
Canada2
Mortgages	25,163	45	44	43	46	58
Credit cards	299	10	9	8	11	11
Other	1,399	16	14	13	17	36

1     ECL sensitivities exclude portfolios utilising less complex modelling approaches.

2   Classified as 'assets held for sale' at 31 December 2022 and 30 June 2023.

At 30 June 2023, the highest level of 100% scenario-weighted ECL was observed in the UK, Mexico and Hong Kong. Mortgages reflected the lowest level of ECL across most markets and scenarios, as collateral values remained resilient. Hong Kong mortgages had low levels of reported ECL due to the credit quality of the portfolio, and so ECL under the remaining scenarios were also negligible. Credit cards and 'Other' portfolios contributed to the largest proportion of ECL, as they generally have higher ECL and are more sensitive to economic forecasts. ECL sensitivity in Mexico increased under each of the scenarios aligned to the observed lending growth.

Group ECL sensitivity results

The ECL impact of the scenarios and management judgemental adjustments are highly sensitive to movements in economic forecasts. Based upon the sensitivity tables presented above, if the Group ECL balance (excluding wholesale stage 3, which is assessed individually) was estimated solely on the basis of the Central scenario, Upside scenario, Downside 1 scenario or the Downside 2 scenario at 30 June 2023, it would increase/(decrease) as presented in the below table.

	Retail1	Wholesale1
Total Group ECL at 30 Jun 2023	$bn	$bn
Reported ECL	3.1	2.7
Scenarios
100% consensus Central scenario	(0.1)	(0.3)
100% consensus Upside scenario	(0.6)	(0.9)
100% consensus Downside scenario	0.5	0.8
100% Downside 2 scenario	1.9	5.5

Total Group ECL at 31 Dec 2022
Reported ECL	3.0	3.1
Scenarios
100% consensus Central scenario	(0.2)	(0.5)
100% consensus Upside scenario	(0.6)	(1.1)
100% consensus Downside scenario	0.4	0.8
100% Downside 2 scenario	1.8	5.5

1     On the same basis as retail and wholesale sensitivity analysis.

At 30 June 2023, the Group reported ECL increased by $0.1bn in retail and decreased by $0.4bn in wholesale compared with 31 December 2022.

In both the retail and wholesale portfolios, the reduction in the Central scenario ECL was observed due to a higher assigned weighting to the scenario at 30 June 2023. For retail, there was minimal ECL change observed in the remaining scenarios.

In the wholesale portfolio, the uncertainty in relation to high inflation and interest rates was offset in some markets by the crystallisation of defaults in Hong Kong and the decrease of the corresponding downside uncertainty.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers

The following disclosure provides a reconciliation by stage of the Group's gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees. Movements are calculated on a quarterly basis and therefore fully capture stage movements between quarters. If movements were calculated on a year-to-date basis they would only reflect the opening and closing position of the financial instrument.

The transfers of financial instruments represent the impact of stage transfers upon the gross carrying/nominal amount and associated allowance for ECL.

The net remeasurement of ECL arising from stage transfers represents the increase or decrease due to these transfers, for example, moving from a 12-month (stage 1) to a lifetime (stage 2) ECL measurement basis. Net remeasurement excludes the underlying customer risk rating ('CRR')/probability of default ('PD') movements of the financial instruments transferring stage. This is captured, along with other credit quality movements in the 'changes in risk parameters - credit quality' line item.

Changes in 'New financial assets originated or purchased', 'assets derecognised (including final repayments)' and 'changes to risk parameters - further lending/repayments' represent the impact from volume movements within the Group's lending portfolio.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
At 1 Jan 2023	1,433,643	(1,257)	177,223	(3,710)	21,207	(6,949)	129	(38)	1,632,202	(11,954)
Transfers of financial instruments:	(22,336)	(491)	18,284	1,120	4,052	(629)	-	-	-	-
-  transfers from stage 1 to stage 2	(82,829)	196	82,829	(196)	-	-	-	-	-	-
-  transfers from stage 2 to stage 1	61,112	(665)	(61,112)	665	-	-	-	-	-	-
-  transfers to stage 3	(1,045)	4	(4,146)	718	5,191	(722)	-	-	-	-
-  transfers from stage 3	426	(26)	713	(67)	(1,139)	93	-	-	-	-
Net remeasurement of ECL arising from transfer of stage	-	437	-	(532)	-	(62)	-	-	-	(157)
New financial assets originated or purchased	207,739	(325)	-	-	-	-	-	-	207,739	(325)
Assets derecognised (including final repayments)	(137,067)	113	(18,659)	163	(2,216)	170	(14)	-	(157,956)	446
Changes to risk parameters - further lending/repayments	(47,927)	102	2,882	97	(65)	187	(44)	1	(45,154)	387
Changes to risk parameters - credit quality	-	212	-	(494)	-	(1,432)	-	13	-	(1,701)
Changes to models used for ECL calculation	-	(7)	-	(6)	-	-	-	-	-	(13)
Assets written off	-	-	-	-	(1,378)	1,378	-	-	(1,378)	1,378
Foreign exchange	16,358	(47)	3,260	(107)	252	(90)	-	-	19,870	(244)
Other1,2	18,386	(4)	1,373	5	65	(28)	(10)	(1)	19,814	(28)
At 30 Jun 2023	1,468,796	(1,267)	184,363	(3,464)	21,917	(7,455)	61	(25)	1,675,137	(12,211)
ECL income statement change for the period		532		(772)		(1,137)		14		(1,363)
Recoveries										136
Other										(115)
Total ECL income statement change for the period										(1,342)

	At 30 Jun 2023		6 months ended 30 Jun 2023
	Gross carrying/nominal amount	Allowance for ECL	ECL release/(charge)
	$m	$m	$m
As above	1,675,137	(12,211)	(1,342)
Other financial assets measured at amortised cost	960,249	(489)	(32)
Non-trading reverse purchase agreement commitments	65,562	-	-
Performance and other guarantees not considered for IFRS 9	-	-	25
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement	2,700,948	(12,700)	(1,349)
Debt instruments measured at FVOCI	287,195	(125)	4
Total allowance for ECL/total income statement ECL change for the period	n/a	(12,825)	(1,345)

1     Total includes $25.1bn of gross carrying loans and advances, which were classified from assets held for sale, and a corresponding allowance for ECL of $92m, reflecting the planned sale of our retail banking operations in France no longer meeting the definition of held for sale. For further details, see 'Assets held for sale' on page 68.

2     Total includes $3.9bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale, and corresponding allowance for ECL of $75m, reflecting the planned merger of our business in Oman. For further details, see 'Assets held for sale' on page 68.

As shown in the previous table, the allowance for ECL for loans and advances to customers and banks and relevant loan commitments and financial guarantees increased by $257m during the period, from $11,954m at 31 December 2022 to $12,211m at 30 June 2023.

This increase was driven by:

-   $1,701m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages;

-   foreign exchange and other movements of $272m;

-   $157m relating to the net remeasurement impact of stage transfers; and

-   $13m relating to changes to models used for ECL calculation.

These were partly offset by:

-   $1,378m of assets written off; and

-   $508m relating to volume movements, which included the ECL allowance associated with new originations, assets derecognised and further pending repayment.

The ECL charge for the period of $1,363m presented in the previous table consisted of $1,701m relating to underlying credit quality changes, including the credit quality impact of financial instruments transferring between stages, $157m relating to the net remeasurement impact of stage transfers and $13m relating to changes to models used for ECL calculation. These were partly offset by $508m relating to underlying net book volume.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees (continued)
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL	Gross carrying/ nominal amount	Allowance for ECL
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
At 1 Jan 2022	1,575,808	(1,552)	155,654	(3,323)	19,796	(6,928)	275	(64)	1,751,533	(11,867)
Transfers of financial instruments:	(98,940)	(794)	88,974	1,616	9,966	(822)	-	-	-	-
-  transfers from stage 1 to stage 2	(225,458)	469	225,458	(469)	-	-	-	-	-	-
-  transfers from stage 2 to stage 1	128,170	(1,211)	(128,170)	1,211	-	-	-	-	-	-
-  transfers to stage 3	(2,392)	9	(10,083)	1,132	12,475	(1,141)	-	-	-	-
-  transfers from stage 3	740	(61)	1,769	(258)	(2,509)	319	-	-	-	-
Net remeasurement of ECL arising from transfer of stage	-	735	-	(948)	-	(148)	-	-	-	(361)
New financial assets originated or purchased	483,484	(547)	-	-	-	-	26	(2)	483,510	(549)
Assets derecognised (including final repayments)	(318,585)	147	(37,900)	343	(2,806)	416	(98)	-	(359,389)	906
Changes to risk parameters - further lending/repayment	(65,646)	225	(6,977)	92	(593)	258	(61)	5	(73,277)	580
Changes to risk parameters - credit quality	-	400	-	(1,671)	-	(3,019)	-	32	-	(4,258)
Changes to models used for ECL calculation	-	4	-	(151)	-	13	-	-	-	(134)
Assets written off	-	-	-	-	(2,791)	2,791	(10)	10	(2,801)	2,801
Credit-related modifications that resulted in derecognition	-	-	-	-	(32)	9	-	-	(32)	9
Foreign exchange	(81,954)	59	(8,811)	170	(1,395)	323	(3)	1	(92,163)	553
Other1,2	(60,524)	66	(13,717)	162	(938)	158	-	(20)	(75,179)	366
At 31 Dec 2022	1,433,643	(1,257)	177,223	(3,710)	21,207	(6,949)	129	(38)	1,632,202	(11,954)
ECL income statement change for the period		964		(2,335)		(2,480)		35		(3,816)
Recoveries										316
Other										(28)
Total ECL income statement change for the period3										(3,528)

	At 31 Dec 2022		12 months ended 31 Dec 2022
	Gross carrying/nominal amount	Allowance for  ECL	ECL charge
	$m	$m	$m
As above	1,632,202	(11,954)	(3,528)
Other financial assets measured at amortised cost	954,934	(493)	(38)
Non-trading reverse purchase agreement commitments	44,921	-	-
Performance and other guarantees not considered for IFRS 9	-	-	39
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied/Summary consolidated income statement	2,632,057	(12,447)	(3,527)
Debt instruments measured at FVOCI	265,147	(126)	(57)
Total allowance for ECL/total income statement ECL change for the period	n/a	(12,573)	(3,584)

1     Total includes $82.7bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding allowance for ECL of $426m, reflecting business disposals as disclosed on page 68.

2     Includes $8.9bn of gross carrying amounts of stage 1 loans and advances to banks, representing the balance maintained with the Bank of England to support Bacs along with Faster Payments and the cheque-processing Image Clearing System in the UK. This balance was previously reported under 'Cash and balances at central banks'. Comparatives have not been restated.

3     The 31 December 2022 total ECL income statement change of $3,528m is attributable to $1,069m for the six months ended 30 June 2022 and $2,459m to the six months ended 31 December 2022.

Credit quality of financial instruments

We assess the credit quality of all financial instruments that are subject to credit risk. The credit quality of financial instruments is a point-in-time assessment of PD, whereas stages 1 and 2 are determined based on relative deterioration of credit quality since initial recognition. Accordingly, for non-credit-impaired financial instruments, there is no direct relationship between the credit quality assessment and stages 1 and 2, though typically the lower credit quality bands exhibit a higher proportion in stage 2.

The five credit quality classifications each encompass a range of granular internal credit rating grades assigned to wholesale and personal lending businesses and the external ratings attributed by external agencies to debt securities, as shown in the following table. Personal lending credit quality is disclosed based on a 12-month point-in-time PD adjusted for multiple economic scenarios. The credit quality classifications for wholesale lending are based on internal credit risk ratings.

Credit quality classification
	Sovereign debt securities and bills	Other debt securities and bills	Wholesale lending and derivatives		Retail lending
	External credit rating	External credit rating	Internal credit rating	12-month Basel probability of default %	Internal credit rating	12 month probability- weighted PD %
Quality classification1,2
Strong	BBB and above	A- and above	CRR 1 to CRR 2	0 - 0.169	Band 1 and 2	0.000 - 0.500
Good	BBB- to BB	BBB+ to BBB-	CRR 3	0.170 - 0.740	Band 3	0.501 - 1.500
Satisfactory	BB- to B and unrated	BB+ to B and unrated	CRR 4 to CRR 5	0.741 - 4.914	Band 4 and 5	1.501 - 20.000
Sub-standard	B- to C	B- to C	CRR 6 to CRR 8	4.915 - 99.999	Band 6	20.001 - 99.999
Credit impaired	Default	Default	CRR 9 to CRR 10	100	Band 7	100

1     Customer risk rating ('CRR').

2     12-month point-in-time probability-weighted probability of default ('PD').

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
	Gross carrying/nominal amount						Allowance for ECL	Net
	Strong	Good	Satisfac-tory	Sub-standard	Credit impaired	Total
	$m	$m	$m	$m	$m	$m	$m	$m
Loans and advances to customers at amortised cost	514,425	210,675	199,372	26,747	20,077	971,296	(11,738)	959,558
-  stage 1	484,205	173,801	145,995	4,375	-	808,376	(1,106)	807,270
-  stage 2	30,220	36,874	53,377	22,372	-	142,843	(3,269)	139,574
-  stage 3	-	-	-	-	20,016	20,016	(7,338)	12,678
-  POCI	-	-	-	-	61	61	(25)	36
Loans and advances to banks at amortised cost	89,733	4,282	5,614	1,282	84	100,995	(74)	100,921
-  stage 1	89,658	4,181	5,467	317	-	99,623	(18)	99,605
-  stage 2	75	101	147	965	-	1,288	(33)	1,255
-  stage 3	-	-	-	-	84	84	(23)	61
-  POCI	-	-	-	-	-	-	-	-
Other financial assets measured at amortised cost	814,096	80,611	60,807	3,968	767	960,249	(489)	959,760
-  stage 1	813,916	78,629	53,012	345	-	945,902	(96)	945,806
-  stage 2	180	1,982	7,795	3,623	-	13,580	(147)	13,433
-  stage 3	-	-	-	-	757	757	(237)	520
-  POCI	-	-	-	-	10	10	(9)	1
Loans and other credit-related commitments	412,775	144,157	83,471	7,518	1,605	649,526	(348)	649,178
-  stage 1	401,616	134,384	71,762	2,310	-	610,072	(135)	609,937
-  stage 2	11,159	9,773	11,709	5,208	-	37,849	(150)	37,699
-  stage 3	-	-	-	-	1,605	1,605	(63)	1,542
-  POCI	-	-	-	-	-	-	-	-
Financial guarantees	8,195	4,846	4,810	819	212	18,882	(51)	18,831
-  stage 1	8,020	4,466	3,502	147	-	16,135	(8)	16,127
-  stage 2	175	380	1,308	672	-	2,535	(12)	2,523
-  stage 3	-	-	-	-	212	212	(31)	181
-  POCI	-	-	-	-	-	-	-	-
At 30 Jun 2023	1,839,224	444,571	354,074	40,334	22,745	2,700,948	(12,700)	2,688,248
Debt instruments at FVOCI1
-  stage 1	278,748	12,202	7,362	-	-	298,312	(74)	298,238
-  stage 2	107	13	229	1,732	-	2,081	(50)	2,031
-  stage 3	-	-	-	-	5	5	(1)	4
-  POCI	-	-	-	-	2	2	-	2
At 30 Jun 2023	278,855	12,215	7,591	1,732	7	300,400	(125)	300,275

1     For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such, the gross carrying value of debt instruments at FVOCI will not reconcile to the balance sheet as it excludes fair value gains and losses.

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation (continued)
	Gross carrying/notional amount
	Strong	Good	Satisfa-ctory	Sub- standard	Credit impaired	Total	Allowance for ECL	Net
	$m	$m	$m	$m	$m	$m	$m	$m
Loans and advances to customers at amortised cost	492,711	196,735	196,486	29,443	19,633	935,008	(11,447)	923,561
-  stage 1	458,706	170,055	142,408	5,130	-	776,299	(1,092)	775,207
-  stage 2	34,005	26,680	54,078	24,313	-	139,076	(3,488)	135,588
-  stage 3	-	-	-	-	19,504	19,504	(6,829)	12,675
-  POCI	-	-	-	-	129	129	(38)	91
Loans and advances to banks at amortised cost	92,675	4,833	5,643	1,311	82	104,544	(69)	104,475
-  stage 1	92,377	4,465	5,466	415	-	102,723	(18)	102,705
-  stage 2	298	368	177	896	-	1,739	(29)	1,710
-  stage 3	-	-	-	-	82	82	(22)	60
-  POCI	-	-	-	-	-	-	-	-
Other financial assets measured at amortised cost	808,573	75,298	67,462	2,804	797	954,934	(493)	954,441
-  stage 1	807,893	70,794	59,887	224	-	938,798	(95)	938,703
-  stage 2	680	4,504	7,575	2,580	-	15,339	(165)	15,174
-  stage 3	-	-	-	-	797	797	(233)	564
-  POCI	-	-	-	-	-	-	-	-
Loans and other credit-related commitments	402,972	132,402	74,410	7,632	1,372	618,788	(386)	618,402
-  stage 1	398,120	121,581	60,990	2,692	-	583,383	(141)	583,242
-  stage 2	4,852	10,821	13,420	4,940	-	34,033	(180)	33,853
-  stage 3	-	-	-	-	1,372	1,372	(65)	1,307
-  POCI	-	-	-	-	-	-	-	-
Financial guarantees	8,281	4,669	4,571	1,013	249	18,783	(52)	18,731
-  stage 1	8,189	4,245	3,488	149	-	16,071	(6)	16,065
-  stage 2	92	424	1,083	864	-	2,463	(13)	2,450
-  stage 3	-	-	-	-	249	249	(33)	216
-  POCI	-	-	-	-	-	-	-	-
At 31 Dec 2022	1,805,212	413,937	348,572	42,203	22,133	2,632,057	(12,447)	2,619,610
Debt instruments at FVOCI1
-  stage 1	260,411	9,852	5,446	-	-	275,709	(66)	275,643
-  stage 2	243	105	284	1,910	-	2,542	(60)	2,482
-  stage 3	-	-	-	-	5	5	(1)	4
-  POCI	-	-	-	-	2	2	-	2
At 31 Dec 2022	260,654	9,957	5,730	1,910	7	278,258	(127)	278,131

1     For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset, before adjusting for any loss allowance. As such, the gross carrying value of debt instruments at FVOCI will not reconcile to the balance sheet as it excludes fair value gains and losses.

Personal lending

This section provides further details on the regions, countries and products driving the increase in personal loans and advances to customers. Additionally, Hong Kong and UK mortgage book
loan-to-value ('LTV') data are provided.

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

At 30 June 2023, total personal lending for loans and advances to customers of $453.4bn increased by $38.5bn compared with 31 December 2022. This increase included favourable foreign exchange movements of $9.2bn. Excluding foreign exchange movements, the increase was mainly due to an increase of $22.3bn from our retail banking operations in France being no longer classified as assets held for sale. In addition, our personal lending increased by $4.4bn in Hong Kong, $1.8bn in the UK, $1.2bn in Mexico and $1.0bn in Australia. This was partly offset by a $1.2bn decline by the reclassification of our business in Oman as held for sale.

The allowance for ECL attributable to personal lending, excluding off-balance sheet loan commitments and guarantees, increased by $0.1bn to $3.0bn at 30 June 2023. This was mostly due to adverse foreign exchange movements.

Excluding foreign exchange movements, mortgage lending balances increased by $9.9bn to $354.7bn at 30 June 2023. Mortgages grew by $4.0bn in Hong Kong, $1.1bn in the UK, $1.1bn in Mexico, $1.0bn in Australia and $0.6m in the US. In addition, mortgage lending balances increased by $2.2bn from the recognition of our retail banking operations in France being no longer classified as held for sale. This was partly offset by a $0.3bn decline by the reclassification of our business in Oman as held for sale.

The allowance for ECL attributable to mortgages remained broadly stable at $0.6bn when compared with 31 December 2022.

Total personal lending gross carrying amounts in stage 2 increased by $9.3bn compared with 31 December 2022. Excluding favourable foreign exchange movements of $2.2bn and the reversal of our retail banking operations in France being classified as held for sale of $2.2bn, the increase was mainly due to $5.0bn growth in HSBC UK. The rise in stage 2 balances was largely explained by the deterioration in the economic outlook on account of rising interest rates and inflationary pressures. This was partly offset by transfers to stage 1.

The quality of both our Hong Kong and UK mortgage books remained high, with low levels of impairment allowances. The average LTV ratio on new mortgage lending in Hong Kong was 67%, compared with an estimated 54% for the overall mortgage portfolio. The average LTV ratio on new lending in the UK was 64%, compared with an estimated 52% for the overall mortgage portfolio.

Excluding foreign exchange movements, other personal lending balances increased by $19.4bn compared with 31 December 2022. The increase of $20.1bn was due to our retail banking operations in France being no longer classified as held for sale. This was partly offset by a $0.9bn decline by the reclassification of our business in Oman as held for sale. At 30 June 2023, the allowance for ECL attributable to other personal lending remained broadly stable at $2.4bn.

Total personal lending for loans and advances to customers by stage distribution
	Gross carrying amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	$m	$m	$m	$m	$m	$m	$m	$m
By portfolio
First lien residential mortgages	305,349	47,161	2,224	354,734	(103)	(224)	(277)	(604)
-  of which: interest only (including offset)	20,236	7,348	227	27,811	(7)	(29)	(49)	(85)
-  affordability (including US adjustable rate mortgages)	15,200	373	262	15,835	(5)	(1)	(6)	(12)
Other personal lending	86,352	10,999	1,362	98,713	(473)	(1,343)	(606)	(2,422)
-  second lien residential mortgages	335	13	25	373	(1)	(2)	(3)	(6)
-  guaranteed loans in respect of residential property	17,703	1,803	172	19,678	(4)	(6)	(22)	(32)
-  other personal lending which is secured	31,567	538	165	32,270	(15)	(9)	(31)	(55)
-  credit cards	17,855	4,569	277	22,701	(227)	(759)	(180)	(1,166)
-  other personal lending which is unsecured	17,001	3,874	712	21,587	(213)	(548)	(363)	(1,124)
-  motor vehicle finance	1,891	202	11	2,104	(13)	(19)	(7)	(39)
At 30 Jun 2023	391,701	58,160	3,586	453,447	(576)	(1,567)	(883)	(3,026)
By legal entity
HSBC UK Bank plc	132,652	44,460	1,094	178,206	(150)	(662)	(249)	(1,061)
HSBC Bank plc	25,924	3,528	331	29,783	(16)	(26)	(102)	(144)
The Hong Kong and Shanghai Banking Corporation Limited	189,301	7,987	958	198,246	(140)	(380)	(162)	(682)
HSBC Bank Middle East Limited	3,546	175	70	3,791	(35)	(35)	(44)	(114)
HSBC North America Holdings Inc.	17,386	369	367	18,122	(9)	(16)	(10)	(35)
Grupo Financiero HSBC, S.A. de C.V.	11,873	1,318	488	13,679	(197)	(407)	(236)	(840)
Other trading entities	11,019	323	278	11,620	(29)	(41)	(80)	(150)
At 30 Jun 2023	391,701	58,160	3,586	453,447	(576)	(1,567)	(883)	(3,026)

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution
	Nominal amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	$m	$m	$m	$m	$m	$m	$m	$m
HSBC UK Bank plc	49,093	4,800	82	53,975	(12)	(1)	(2)	(15)
HSBC Bank plc	2,343	41	3	2,387	-	-	-	-
The Hong Kong and Shanghai Banking Corporation Limited	174,742	3,905	873	179,520	(3)	-	-	(3)
HSBC Bank Middle East Limited	1,892	22	1	1,915	(1)	-	-	(1)
HSBC North America Holdings Inc.	3,955	19	7	3,981	-	-	-	-
HSBC Bank Canada	6,419	117	29	6,565	-	-	-	-
Grupo Financiero HSBC, S.A. de C.V.	4,053	-	-	4,053	(6)	-	-	(6)
Other trading entities	2,506	47	3	2,556	-	-	-	-
At 30 Jun 2023	245,003	8,951	998	254,952	(22)	(1)	(2)	(25)

Total personal lending for loans and advances to customers by stage distribution (continued)
	Gross carrying amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	$m	$m	$m	$m	$m	$m	$m	$m
By portfolio
First lien residential mortgages	294,919	39,860	2,042	336,821	(74)	(231)	(270)	(575)
-  of which: interest only (including offset)	19,636	4,485	169	24,290	(3)	(46)	(41)	(90)
-  affordability (including US adjustable rate mortgages)	14,773	369	240	15,382	(5)	(3)	(4)	(12)
Other personal lending	67,758	9,006	1,297	78,061	(487)	(1,273)	(535)	(2,295)
-  second lien residential mortgages	353	20	6	379	(1)	(2)	(3)	(6)
-  guaranteed loans in respect of residential property	1,121	121	125	1,367	(1)	(3)	(30)	(34)
-  other personal lending which is secured	31,306	594	206	32,106	(15)	(10)	(30)	(55)
-  credit cards	16,705	4,423	260	21,388	(225)	(776)	(160)	(1,161)
-  other personal lending which is unsecured	16,512	3,681	687	20,880	(234)	(469)	(305)	(1,008)
-  motor vehicle finance	1,761	167	13	1,941	(11)	(13)	(7)	(31)
At 31 Dec 2022	362,677	48,866	3,339	414,882	(561)	(1,504)	(805)	(2,870)
By legal entity
HSBC UK Bank plc	128,590	37,394	1,012	166,996	(135)	(688)	(227)	(1,050)
HSBC Bank plc	6,377	740	127	7,244	(10)	(18)	(38)	(66)
The Hong Kong and Shanghai Banking Corporation Limited	185,723	8,698	1,117	195,538	(138)	(362)	(187)	(687)
HSBC Bank Middle East Limited	3,657	184	86	3,927	(26)	(37)	(52)	(115)
HSBC North America Holdings Inc.	16,906	375	270	17,551	(12)	(23)	(6)	(41)
Grupo Financiero HSBC, S.A. de C.V.	9,542	1,099	377	11,018	(213)	(331)	(194)	(738)
Other trading entities	11,882	376	350	12,608	(27)	(45)	(101)	(173)
At 31 Dec 2022	362,677	48,866	3,339	414,882	(561)	(1,504)	(805)	(2,870)

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)
	Nominal amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	$m	$m	$m	$m	$m	$m	$m	$m
HSBC UK Bank plc	50,535	439	104	51,078	(11)	(1)	-	(12)
HSBC Bank plc	2,440	131	7	2,578	-	-	-	-
The Hong Kong and Shanghai Banking Corporation Limited	170,104	2,916	634	173,654	(2)	-	-	(2)
HSBC Bank Middle East Limited	1,717	8	1	1,726	(1)	-	-	(1)
HSBC North America Holdings Inc.	3,914	24	17	3,955	(1)	-	-	(1)
HSBC Bank Canada	6,346	115	30	6,491	-	-	-	-
Grupo Financiero HSBC, S.A. de C.V.	3,198	-	-	3,198	(9)	-	-	(9)
Other trading entities	2,390	64	7	2,461	(2)	-	-	(2)
At 31 Dec 2022	240,644	3,697	800	245,141	(26)	(1)	-	(27)

Wholesale lending     

This section provides further details on the regions, countries and industries driving the decrease in wholesale loans and advances to customers and banks, with the impact of foreign exchange separately identified. Industry granularity is also provided by stage, with geographical data presented for loans and advances to customers, banks, other credit commitments, financial guarantees and similar contracts.

At 30 June 2023, wholesale lending for loans and advances to banks and customers of $618.8bn decreased by $5.8bn since 31 December 2022. This included adverse foreign exchange movements of $3.1bn.

Excluding foreign exchange movements, the total wholesale lending decrease of $8.9bn was driven by a $15.7bn decrease in corporate and commercial balances. This can be attributed to a $10.5bn decrease in Hong Kong, a $3.0bn decrease in the UK and a $2.1bn decrease from the reclassification of our business in Oman into 'assets held for sale'.

A further decline in wholesale lending was driven by a $2.6bn decrease in loans and advances to banks, including a $5.0bn decrease in mainland China, a $1.3bn decrease in the UAE, a $0.9bn decrease in Switzerland and a $0.6bn decrease from the reclassification of our business in Oman into 'assets held for sale'. These were partly offset by a $2.8bn increase in Hong Kong and a $2.6bn increase in Singapore.

Loans and advances to non-bank financial institutions grew by $9.4bn, including a $5.1bn increase in the UK and a $2.2bn increase in Hong Kong.

Loan commitments and financial guarantees increased by $21bn since 31 December 2022 to $413.5bn at 30 June 2023. Excluding favourable foreign exchange movements of $6.3bn, loan commitments and financial guarantees grew by $14.8bn. This can be mainly attributed to a $19.6bn increase in unsettled reverse repurchase agreements, partly offset by a decrease of $7.9bn in loan commitments with corporate and commercial customers.

The allowance for ECL attributable to loans and advances to banks and customers of $8.8bn at 30 June 2023 increased from $8.6bn at 31 December 2022. This included adverse foreign exchange movements of $64m.

Excluding foreign exchange movements, the total increase in the wholesale ECL allowance for loans and advances to customers and banks was mostly driven by a $47m growth in loans to non-bank financial institutions and a $24m rise in corporate and commercial balances.

The allowance for ECL attributable to loan commitments and financial guarantees at 30 June 2023 remained at $0.4bn from 31 December 2022.

Total wholesale lending for loans and advances to banks and customers by stage distribution
	Gross carrying amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Corporate and commercial	345,116	80,274	15,807	61	441,258	(468)	(1,630)	(6,278)	(25)	(8,401)
-  agriculture, forestry and fishing	5,075	1,714	310	-	7,099	(11)	(46)	(61)	-	(118)
-  mining and quarrying	6,957	829	360	1	8,147	(6)	(17)	(117)	(1)	(141)
-  manufacturing	68,475	15,594	1,932	24	86,025	(89)	(213)	(807)	(22)	(1,131)
-  electricity, gas, steam and air-conditioning supply	13,690	1,510	298	-	15,498	(14)	(24)	(80)	-	(118)
-  water supply, sewerage, waste management and remediation	2,345	636	29	-	3,010	(4)	(14)	(16)	-	(34)
-  construction	10,550	2,324	843	-	13,717	(21)	(43)	(424)	-	(488)
-  wholesale and retail trade, repair of motor vehicles and motorcycles	64,397	13,484	2,484	4	80,369	(90)	(168)	(1,237)	(2)	(1,497)
-  transportation and storage	18,996	4,825	439	-	24,260	(23)	(57)	(142)	-	(222)
-  accommodation and food	8,674	6,962	882	-	16,518	(25)	(171)	(87)	-	(283)
-  publishing, audiovisual and broadcasting	16,602	1,552	311	-	18,465	(17)	(48)	(137)	-	(202)
-  real estate	67,095	20,976	5,223	18	93,312	(75)	(578)	(2,322)	-	(2,975)
-  professional, scientific and technical activities	16,679	2,128	647	-	19,454	(21)	(67)	(214)	-	(302)
-  administrative and support services	21,010	4,453	935	14	26,412	(29)	(83)	(330)	-	(442)
-  public administration and defence, compulsory social security	1,043	9	-	-	1,052	-	(1)	-	-	(1)
-  education	1,139	282	86	-	1,507	(3)	(7)	(26)	-	(36)
-  health and care	3,285	595	165	-	4,045	(3)	(26)	(23)	-	(52)
-  arts, entertainment and recreation	1,329	397	112	-	1,838	(4)	(13)	(42)	-	(59)
-  other services	9,701	1,736	489	-	11,926	(31)	(40)	(207)	-	(278)
-  activities of households	776	1	-	-	777	-	-	-	-	-
-  extra-territorial organisations and bodies activities	-	-	-	-	-	-	-	-	-	-
-  government	7,278	254	262	-	7,794	(2)	(1)	(6)	-	(9)
-  asset-backed securities	20	13	-	-	33	-	(13)	-	-	(13)
Non-bank financial institutions	71,559	4,409	623	-	76,591	(62)	(72)	(177)	-	(311)
Loans and advances to banks	99,623	1,288	84	-	100,995	(18)	(33)	(23)	-	(74)
At 30 Jun 2023	516,298	85,971	16,514	61	618,844	(548)	(1,735)	(6,478)	(25)	(8,786)
By legal entity
HSBC UK Bank plc	70,737	24,049	4,161	-	98,947	(174)	(593)	(759)	-	(1,526)
HSBC Bank plc	83,612	10,101	2,959	3	96,675	(65)	(168)	(1,099)	-	(1,332)
The Hong Kong and Shanghai Banking Corporation Limited	286,821	40,313	7,357	54	334,545	(204)	(677)	(3,498)	(22)	(4,401)
HSBC Bank Middle East Limited	20,978	1,393	852	4	23,227	(12)	(12)	(620)	(3)	(647)
HSBC North America Holdings Inc.	29,482	6,792	260	-	36,534	(33)	(197)	(55)	-	(285)
Grupo Financiero HSBC, S.A. de C.V.	12,068	1,583	441	-	14,092	(36)	(64)	(242)	-	(342)
Other trading entities	12,569	1,740	484	-	14,793	(24)	(24)	(205)	-	(253)
Holding companies, shared service centres and intra-Group eliminations	31	-	-	-	31	-	-	-	-	-
At 30 Jun 2023	516,298	85,971	16,514	61	618,844	(548)	(1,735)	(6,478)	(25)	(8,786)

Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1
	Nominal amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Corporate and commercial	252,497	25,888	780	-	279,165	(112)	(147)	(89)	-	(348)
Financial	128,707	5,545	39	-	134,291	(9)	(14)	(3)	-	(26)
At 30 Jun 2023	381,204	31,433	819	-	413,456	(121)	(161)	(92)	-	(374)
By legal entity
HSBC UK Bank plc	29,661	7,134	222	-	37,017	(23)	(48)	(44)	-	(115)
HSBC Bank plc	159,850	11,389	248	-	171,487	(14)	(33)	(32)	-	(79)
The Hong Kong and Shanghai Banking Corporation Limited	68,226	4,151	69	-	72,446	(49)	(37)	(10)	-	(96)
HSBC Bank Middle East Limited	5,889	732	10	-	6,631	(5)	-	-	-	(5)
HSBC North America Holdings Inc.	86,911	4,767	162	-	91,840	(19)	(34)	(2)	-	(55)
HSBC Bank Canada	26,695	2,826	100	-	29,621	(9)	(7)	(2)	-	(18)
Grupo Financiero HSBC, S.A. de C.V.	2,426	60	1	-	2,487	(1)	(1)	(1)	-	(3)
Other trading entities	1,546	374	7	-	1,927	(1)	(1)	(1)	-	(3)
At 30 Jun 2023	381,204	31,433	819	-	413,456	(121)	(161)	(92)	-	(374)

1     Included in loans and other credit-related commitments and financial guarantees is $66bn relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.                                                                                                                                                                                                                

Total wholesale lending for loans and advances to banks and customers by stage distribution (continued)
	Gross carrying amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Corporate and commercial	351,885	85,492	15,696	129	453,202	(488)	(1,907)	(5,887)	(38)	(8,320)
-  agriculture, forestry and fishing	4,805	1,505	261	-	6,571	(10)	(44)	(68)	-	(122)
-  mining and quarrying	6,424	1,463	232	1	8,120	(5)	(21)	(145)	(1)	(172)
-  manufacturing	70,144	15,251	2,016	49	87,460	(93)	(164)	(867)	(29)	(1,153)
-  electricity, gas, steam and air-conditioning supply	14,402	1,799	277	-	16,478	(10)	(31)	(67)	-	(108)
-  water supply, sewerage, waste management and remediation	2,690	277	26	-	2,993	(3)	(5)	(13)	-	(21)
-  construction	9,678	2,742	791	7	13,218	(21)	(51)	(368)	(3)	(443)
-  wholesale and retail trade, repair of motor vehicles and motorcycles	63,752	15,867	2,805	5	82,429	(97)	(225)	(1,341)	(3)	(1,666)
-  transportation and storage	19,068	5,062	556	-	24,686	(30)	(65)	(153)	-	(248)
-  accommodation and food	9,862	6,523	787	2	17,174	(23)	(139)	(81)	(1)	(244)
-  publishing, audiovisual and broadcasting	16,574	1,537	249	28	18,388	(22)	(36)	(58)	(1)	(117)
-  real estate	72,152	24,362	4,834	19	101,367	(86)	(903)	(1,861)	-	(2,850)
-  professional, scientific and technical activities	15,164	2,229	542	-	17,935	(21)	(51)	(200)	-	(272)
-  administrative and support services	20,592	3,505	962	18	25,077	(25)	(90)	(293)	-	(408)
-  public administration and defence, compulsory social security	1,166	14	-	-	1,180	-	(1)	-	-	(1)
-  education	1,325	181	87	-	1,593	(4)	(5)	(22)	-	(31)
-  health and care	2,993	643	266	-	3,902	(6)	(17)	(67)	-	(90)
-  arts, entertainment and recreation	1,264	452	146	-	1,862	(4)	(16)	(57)	-	(77)
-  other services	10,335	1,547	589	-	12,471	(25)	(30)	(219)	-	(274)
-  activities of households	730	14	-	-	744	-	-	-	-	-
-  extra-territorial organisations and bodies activities	47	-	-	-	47	-	-	-	-	-
-  government	8,699	506	270	-	9,475	(3)	-	(7)	-	(10)
-  asset-backed securities	19	13	-	-	32	-	(13)	-	-	(13)
Non-bank financial institutions	61,737	4,718	469	-	66,924	(43)	(77)	(137)	-	(257)
Loans and advances to banks	102,723	1,739	82	-	104,544	(18)	(29)	(22)	-	(69)
At 31 Dec 2022	516,345	91,949	16,247	129	624,670	(549)	(2,013)	(6,046)	(38)	(8,646)
By legal entity
HSBC UK Bank plc	64,930	18,856	4,439	28	88,253	(165)	(445)	(643)	(1)	(1,254)
HSBC Bank plc	83,174	9,175	2,631	3	94,983	(56)	(181)	(1,075)	-	(1,312)
The Hong Kong and Shanghai Banking Corporation Limited	292,022	50,708	6,934	80	349,744	(216)	(1,074)	(3,125)	(24)	(4,439)
HSBC Bank Middle East Limited	21,922	1,777	946	4	24,649	(11)	(21)	(684)	(3)	(719)
HSBC North America Holdings Inc.	30,816	6,861	211	-	37,888	(24)	(194)	(22)	-	(240)
Grupo Financiero HSBC, S.A. de C.V.	9,969	1,979	399	-	12,347	(48)	(62)	(225)	-	(335)
Other trading entities	13,343	2,593	687	14	16,637	(27)	(36)	(272)	(10)	(345)
At 31 Dec 2022	516,345	91,949	16,247	129	624,670	(549)	(2,013)	(6,046)	(38)	(8,646)

Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution1 (continued)
	Nominal amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Corporate and commercial	252,860	29,116	798	-	282,774	(116)	(178)	(96)	-	(390)
Financial	105,950	3,683	23	-	109,656	(5)	(14)	(2)	-	(21)
At 31 Dec 2022	358,810	32,799	821	-	392,430	(121)	(192)	(98)	-	(411)
By legal entity
HSBC UK Bank plc	26,036	5,527	208	-	31,771	(24)	(45)	(38)	-	(107)
HSBC Bank plc	142,100	11,710	291	-	154,101	(16)	(41)	(47)	-	(104)
The Hong Kong and Shanghai Banking Corporation Limited	67,473	6,081	114	-	73,668	(54)	(53)	(9)	-	(116)
HSBC Bank Middle East Limited	6,683	231	14	-	6,928	(2)	(2)	-	-	(4)
HSBC North America Holdings Inc.	88,039	3,959	87	-	92,085	(13)	(32)	(2)	-	(47)
HSBC Bank Canada	24,395	4,671	84	-	29,150	(8)	(15)	-	-	(23)
Grupo Financiero HSBC, S.A. de C.V.	2,468	240	3	-	2,711	(1)	-	-	-	(1)
Other trading entities	1,616	380	20	-	2,016	(3)	(4)	(2)	-	(9)
At 31 Dec 2022	358,810	32,799	821	-	392,430	(121)	(192)	(98)	-	(411)

1     Included in loans and other credit-related commitments and financial guarantees is $45bn relating to unsettled reverse repurchase agreements, which once drawn are classified as 'Reverse repurchase agreements - non-trading'.

Commercial real estate

Commercial real estate lending includes the financing of corporate, institutional and high net worth customers who are investing primarily in income-producing assets and, to a lesser extent, in their construction and development. The portfolio is globally diversified with larger concentrations in Hong Kong, the UK, mainland China and the US.

Our global exposure is centred largely on cities with economic, political or cultural significance. In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support economic and population growth. In less developed commercial real estate markets, our exposures comprise lending for development assets on relatively short tenors with a particular focus on supporting larger, better capitalised developers involved in residential construction or assets supporting economic expansion.

Excluding favourable foreign exchange movements of $0.5bn, commercial real estate lending decreased by $8.4bn, mainly from $5.7bn in Hong Kong due to loan repayments, in addition to reclassifications of $0.5bn to assets held for sale in the US.

Commercial real estate lending to customers
									of which:
	HSBC UK Bank plc	HSBC Bank plc	The Hong Kong and Shanghai Banking Corpora-tion Limited	HSBC Bank Middle East Limited	HSBC North America Holdings Inc.1,2	Grupo Financiero HSBC, S.A. de C.V.	Other trading entities	Total	UK	Hong Kong
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Gross loans and advances
Stage 1	12,827	4,181	42,242	1,118	1,918	877	839	64,002	13,621	30,218
Stage 2	1,385	650	13,588	313	2,662	65	44	18,707	1,553	10,447
Stage 3	593	214	3,712	173	63	34	45	4,834	731	3,385
POCI	-	-	18	-	-	-	-	18	-	18
At 30 Jun 2023	14,805	5,045	59,560	1,604	4,643	976	928	87,561	15,905	44,068
-  of which: forborne loans	272	154	1,227	378	508	58	-	2,597	410	1,138
Allowance for ECL	(240)	(144)	(2,326)	(68)	(84)	(21)	(13)	(2,896)	(363)	(2,121)

Gross loans and advances
Stage 1	11,409	5,083	46,700	1,094	2,096	832	906	68,120	12,209	35,905
Stage 2	2,763	828	16,311	323	3,249	43	91	23,608	3,008	11,068
Stage 3	702	277	3,320	264	-	28	57	4,648	827	3,029
POCI	-	-	19	-	-	-	-	19	-	19
At 31 Dec 2022	14,874	6,188	66,350	1,681	5,345	903	1,054	96,395	16,044	50,021
-  of which: forborne loans	215	143	763	449	428	47	23	2,068	336	654
Allowance for ECL	(216)	(153)	(2,094)	(153)	(93)	(24)	(13)	(2,746)	(323)	(1,878)

1   The figures for 30 June 2023 exclude gross loans and advances of $0.5bn, and an associated allowance for ECL of $4m, corresponding to individual assets which were reported as held for sale by HSBC North America Holdings Inc.

2   During 1Q23, we aligned the classification of commercial real estate across the Group and re-presented commercial real estate exposure in HSBC North America Holdings Inc. at 31 December 2022 as $5.3bn, which had a corresponding ECL charge of $0.1bn.

Refinance risk in commercial real estate

Commercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt. Refinance risk is the risk that a customer, being

unable to repay the debt on maturity, fails to refinance it at commercial terms. We monitor our commercial real estate portfolio closely, assessing indicators for signs of potential issues with refinancing.

Commercial real estate gross loans and advances to customers maturity analysis
									of which:
	HSBC UK Bank plc	HSBC Bank plc	The Hong Kong and Shanghai Banking Corporation Limited	HSBC Bank Middle East Limited	HSBC North America Holdings Inc.	Grupo Financiero HSBC, S.A. de C.V.	Other trading entities	Total	UK	Hong Kong
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
< 1 year	4,522	1,684	23,350	403	1,363	279	828	32,429	5,393	18,929
1-2 years	4,296	717	16,651	290	1,164	234	10	23,362	4,321	13,013
2-5 years	5,416	1,745	16,763	526	2,099	378	34	26,961	5,609	10,080
> 5 years	571	899	2,796	385	17	85	56	4,809	582	2,046
At 30 Jun 2023	14,805	5,045	59,560	1,604	4,643	976	928	87,561	15,905	44,068

< 1 year	8,315	2,059	23,468	423	1,883	241	703	37,092	9,211	18,675
1-2 years	3,518	1,503	18,007	218	810	115	228	24,399	3,678	13,873
2-5 years	2,385	1,644	21,804	664	2,624	449	60	29,630	2,472	14,963
> 5 years	656	982	3,071	376	28	98	63	5,274	683	2,510
At 31 Dec 2022	14,874	6,188	66,350	1,681	5,345	903	1,054	96,395	16,044	50,021

The following table presents the Group's exposure to borrowers classified in the commercial real estate sector where the ultimate parent is based in mainland China, as well as all commercial real

estate exposures booked on mainland China balance sheets. The exposures at 30 June 2023 are split by country/territory and credit quality including allowances for ECL by stage.

Mainland China commercial real estate
	Hong Kong	Mainland China	Rest of the Group	Total
	$m	$m	$m	$m
Loans and advances to customers1	7,835	4,700	960	13,495
Guarantees issued and others2	241	464	79	784
Total mainland China commercial real estate exposure at 30 Jun 2023	8,076	5,164	1,039	14,279
Distribution of mainland China commercial real estate exposure by credit quality
-  Strong	1,161	1,836	205	3,202
-  Good	747	908	355	2,010
-  Satisfactory	973	1,756	252	2,981
-  Sub-standard	1,891	456	214	2,561
-  Credit impaired	3,304	208	13	3,525
At 30 Jun 2023	8,076	5,164	1,039	14,279
Allowance for ECL by credit quality
-  Strong	-	(2)	-	(2)
-  Good	-	(3)	(1)	(4)
-  Satisfactory	(2)	(87)	(1)	(90)
-  Sub-standard	(205)	(17)	(3)	(225)
-  Credit impaired	(1,774)	(82)	-	(1,856)
At 30 Jun 2023	(1,981)	(191)	(5)	(2,177)
Allowance for ECL by stage distribution
-  Stage 1	-	(6)	(1)	(7)
-  Stage 2	(207)	(103)	(4)	(314)
-  Stage 3	(1,774)	(82)	-	(1,856)
At 30 Jun 2023	(1,981)	(191)	(5)	(2,177)
ECL coverage %	24.5	3.7	0.5	15.2

1   Amounts represent gross carrying amount.

2   Amounts represent nominal amount for guarantees and other contingent liabilities.

Mainland China commercial real estate (continued)
	Hong Kong	Mainland China	Rest of the Group	Total
	$m	$m	$m	$m
Loans and advances to customers1	9,129	5,752	860	15,741
Guarantees issued and others2	249	755	18	1,022
Total mainland China commercial real estate exposure at 31 Dec 2022	9,378	6,507	878	16,763
Distribution of mainland China commercial real estate exposure by credit quality
-  Strong	1,425	2,118	220	3,763
-  Good	697	1,087	370	2,154
-  Satisfactory	1,269	2,248	77	3,594
-  Sub-standard	2,887	779	193	3,859
-  Credit impaired	3,100	275	18	3,393
At 31 Dec 2022	9,378	6,507	878	16,763
Allowance for ECL by credit quality
-  Strong	-	(5)	-	(5)
-  Good	-	(8)	(1)	(9)
-  Satisfactory	(20)	(81)	-	(101)
-  Sub-standard	(458)	(42)	(3)	(503)
-  Credit impaired	(1,268)	(105)	-	(1,373)
At 31 Dec 2022	(1,746)	(241)	(4)	(1,991)
Allowance for ECL by stage distribution
-  Stage 1	(1)	(9)	(1)	(11)
-  Stage 2	(477)	(127)	(3)	(607)
-  Stage 3	(1,268)	(105)	-	(1,373)
-  POCI	-	-	-	-
At 31 Dec 2022	(1,746)	(241)	(4)	(1,991)
ECL coverage %	18.6	3.7	0.5	11.9

1   Amounts represent gross carrying amount.

2   Amounts represent nominal amount for guarantees and other contingent liabilities.

Commercial real estate financing refers to lending that focuses on commercial development and investment in real estate and covers commercial, residential and industrial assets. Commercial real estate financing can also be provided to a corporate or financial entity for the purchase or financing of a property which supports the overall operations of the business.

The exposures in the table are related to companies whose primary activities are focused on residential, commercial and mixed-use real estate activities. Lending is generally focused on tier 1 and 2 cities.

The table above shows 57% of total exposure with a credit quality of 'satisfactory' or above, which was unchanged compared with 31 December 2022. Total 'credit impaired' exposures have nevertheless increased to 26% (31 December 2022: 21%), reflecting sustained stress in the China commercial real estate market, including weakness in both property market fundamentals and financing conditions for borrowers operating in this sector.

Allowances for ECL are substantially against unsecured exposures. For secured exposures, allowances for ECL are minimal, reflecting the nature and value of the security held.

Facilities booked in Hong Kong continue to represent the largest proportion of mainland China commercial real estate exposures, although total exposures reduced to $8.1bn, down $1.3bn since

31 December 2022, as a result of de-risking measures and repayments. This portfolio remains relatively higher risk, with 36% (31 December 2022: 36%) of exposure booked with a credit quality of 'satisfactory' or above and 41% 'credit impaired' (31 December 2022: 33%). This reflected a further credit deterioration during the first half of the year. At 30 June 2023, the Group had allowances for ECL of $2bn (31 December 2022: $1.7bn) held against mainland China commercial real estate exposures booked in Hong Kong.

Approximately half of the unimpaired exposure in the Hong Kong portfolio is lending to state-owned enterprises and relatively strong private-owned enterprises. This is reflected in the relatively low ECL allowance in this part of the portfolio.

Market conditions are likely to remain stressed with a protracted and uncertain recovery as sentiment and domestic residential demand remain weak. There is potential for a further deterioration in credit conditions during the second half of the year given the heightened uncertainty around liquidity support and ongoing weakness in property market fundamentals.

The Group has additional exposures to mainland China commercial real estate as a result of lending to multinational corporates booked outside of mainland China. These are not incorporated in the table above.

Supplementary information

The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9 are applied by global business and the associated allowance for ECL.

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied - by global business
	Gross carrying/nominal amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Loans and advances to customers at amortised cost	808,376	142,843	20,016	61	971,296	(1,106)	(3,269)	(7,338)	(25)	(11,738)
-  WPB	403,926	58,906	4,107	-	466,939	(589)	(1,575)	(939)	-	(3,103)
-  CMB	244,261	69,186	12,745	46	326,238	(423)	(1,441)	(5,103)	(25)	(6,992)
-  GBM	159,915	14,718	3,164	15	177,812	(94)	(240)	(1,296)	-	(1,630)
-  Corporate Centre	274	33	-	-	307	-	(13)	-	-	(13)
Loans and advances to banks at amortised cost	99,623	1,288	84	-	100,995	(18)	(33)	(23)	-	(74)
-  WPB	27,291	422	2	-	27,715	(4)	(1)	(2)	-	(7)
-  CMB	26,328	331	-	-	26,659	(4)	-	-	-	(4)
-  GBM	43,273	423	82	-	43,778	(10)	(32)	(21)	-	(63)
-  Corporate Centre	2,731	112	-	-	2,843	-	-	-	-	-
Other financial assets measured at amortised cost	945,902	13,580	757	10	960,249	(96)	(147)	(237)	(9)	(489)
-  WPB	163,096	3,946	275	-	167,317	(26)	(75)	(73)	-	(174)
-  CMB	205,866	8,913	437	10	215,226	(45)	(63)	(160)	(9)	(277)
-  GBM	500,442	644	41	-	501,127	(23)	(9)	(4)	-	(36)
-  Corporate Centre	76,498	77	4	-	76,579	(2)	-	-	-	(2)
Total gross carrying amount on-balance sheet at 30 Jun 2023	1,853,901	157,711	20,857	71	2,032,540	(1,220)	(3,449)	(7,598)	(34)	(12,301)
Loans and other credit-related commitments	610,072	37,849	1,605	-	649,526	(135)	(150)	(63)	-	(348)
-  WPB	242,869	9,324	984	-	253,177	(23)	(1)	(2)	-	(26)
-  CMB	129,160	16,511	473	-	146,144	(80)	(107)	(60)	-	(247)
-  GBM	237,911	12,014	148	-	250,073	(32)	(42)	(1)	-	(75)
-  Corporate Centre	132	-	-	-	132	-	-	-	-	-
Financial guarantees	16,135	2,535	212	-	18,882	(8)	(12)	(31)	-	(51)
-  WPB	1,245	14	-	-	1,259	-	-	-	-	-
-  CMB	7,291	1,818	121	-	9,230	(7)	(4)	(25)	-	(36)
-  GBM	7,599	703	91	-	8,393	(1)	(8)	(6)	-	(15)
-  Corporate Centre	-	-	-	-	-	-	-	-	-	-
Total nominal amount off-balance sheet at 30 Jun 2023	626,207	40,384	1,817	-	668,408	(143)	(162)	(94)	-	(399)
WPB	117,142	903	-	1	118,046	(12)	(14)	-	-	(26)
CMB	83,149	841	-	1	83,991	(11)	(14)	-	-	(25)
GBM	81,178	162	1	-	81,341	(13)	(7)	-	-	(20)
Corporate Centre	3,611	206	-	-	3,817	(38)	(16)	-	-	(54)
Debt instruments measured at FVOCI at 30 Jun 2023	285,080	2,112	1	2	287,195	(74)	(51)	-	-	(125)

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied - by global business (continued)
	Gross carrying/nominal amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Loans and advances to customers at amortised cost	776,299	139,076	19,504	129	935,008	(1,092)	(3,488)	(6,829)	(38)	(11,447)
-  WPB	372,691	49,045	3,501	-	425,237	(569)	(1,510)	(850)	-	(2,929)
-  CMB	235,293	70,654	12,815	112	318,874	(444)	(1,538)	(4,896)	(38)	(6,916)
-  GBM	167,990	19,334	3,188	17	190,529	(79)	(427)	(1,083)	-	(1,589)
-  Corporate Centre	325	43	-	-	368	-	(13)	-	-	(13)
Loans and advances to banks at amortised cost	102,723	1,739	82	-	104,544	(18)	(29)	(22)	-	(69)
-  WPB	25,770	295	-	-	26,065	(3)	(1)	-	-	(4)
-  CMB	24,107	695	4	-	24,806	(5)	-	(2)	-	(7)
-  GBM	46,778	606	78	-	47,462	(9)	(28)	(20)	-	(57)
-  Corporate Centre	6,068	143	-	-	6,211	(1)	-	-	-	(1)
Other financial assets measured at amortised cost	938,798	15,339	797	-	954,934	(95)	(165)	(233)	-	(493)
-  WPB	194,963	3,962	458	-	199,383	(30)	(75)	(130)	-	(235)
-  CMB	181,238	10,738	253	-	192,229	(35)	(82)	(90)	-	(207)
-  GBM	485,499	637	78	-	486,214	(28)	(8)	(13)	-	(49)
-  Corporate Centre	77,098	2	8	-	77,108	(2)	-	-	-	(2)
Total gross carrying amount on-balance sheet at 31 Dec 2022	1,817,820	156,154	20,383	129	1,994,486	(1,205)	(3,682)	(7,084)	(38)	(12,009)
Loans and other credit-related commitments	583,383	34,033	1,372	-	618,788	(141)	(180)	(65)	-	(386)
-  WPB	238,161	4,377	769	-	243,307	(25)	(1)	-	-	(26)
-  CMB	123,512	18,484	512	-	142,508	(78)	(128)	(55)	-	(261)
-  GBM	221,462	11,171	91	-	232,724	(38)	(51)	(10)	-	(99)
-  Corporate Centre	248	1	-	-	249	-	-	-	-	-
Financial guarantees	16,071	2,463	249	-	18,783	(6)	(13)	(33)	-	(52)
-  WPB	1,196	11	1	-	1,208	-	-	-	-	-
-  CMB	6,830	1,564	130	-	8,524	(5)	(8)	(26)	-	(39)
-  GBM	8,045	888	118	-	9,051	(1)	(5)	(7)	-	(13)
-  Corporate Centre	-	-	-	-	-	-	-	-	-	-
Total nominal amount off-balance sheet at 31 Dec 2022	599,454	36,496	1,621	-	637,571	(147)	(193)	(98)	-	(438)
WPB	112,591	1,066	-	1	113,658	(17)	(17)	-	-	(34)
CMB	71,445	735	-	-	72,180	(9)	(14)	-	-	(23)
GBM	75,228	434	-	1	75,663	(10)	(8)	-	-	(18)
Corporate Centre	3,347	299	-	-	3,646	(31)	(19)	(1)	-	(51)
Debt instruments measured at FVOCI at 31 Dec 2022	262,611	2,534	-	2	265,147	(67)	(58)	(1)	-	(126)

Wholesale lending - loans and advances to customers at amortised cost by country/territory
	Gross carrying amount				Allowance for ECL
	Corporate and commercial	of which: real estate1	Non-bank financial institutions	Total	Corporate and commercial	of which: real estate1	Non-bank financial institutions	Total
	$m	$m	$m	$m	$m	$m	$m	$m
UK	107,700	14,800	18,507	126,207	(1,813)	(358)	(175)	(1,988)
-  of which: HSBC UK Bank plc (ring-fenced bank)	82,258	13,620	8,815	91,073	(1,487)	(229)	(37)	(1,524)
-  of which: HSBC Bank plc (non-ring-fenced bank)	25,442	1,180	9,692	35,134	(326)	(129)	(138)	(464)
France	29,789	4,293	4,829	34,618	(564)	(29)	(5)	(569)
Germany	7,329	240	864	8,193	(159)	-	(2)	(161)
Switzerland	1,227	625	346	1,573	(11)	-	-	(11)
Hong Kong	133,025	49,326	22,843	155,868	(3,203)	(2,211)	(37)	(3,240)
Australia	12,165	3,637	1,253	13,418	(44)	(1)	(1)	(45)
India	10,323	1,868	5,011	15,334	(54)	(5)	(7)	(61)
Indonesia	3,449	122	317	3,766	(202)	(1)	-	(202)
Mainland China	28,956	4,748	8,223	37,179	(277)	(150)	(22)	(299)
Malaysia	5,212	1,005	290	5,502	(83)	(10)	-	(83)
Singapore	16,009	3,253	1,170	17,179	(328)	(10)	-	(328)
Taiwan	4,575	45	102	4,677	-	-	-	-
Egypt	1,038	20	77	1,115	(108)	(9)	-	(108)
UAE	11,964	1,129	689	12,653	(610)	(61)	-	(610)
US	26,824	5,362	8,786	35,610	(242)	(85)	(43)	(285)
Mexico	11,022	913	988	12,010	(340)	(17)	(3)	(343)
Other	30,651	1,926	2,296	32,947	(363)	(28)	(16)	(379)
At 30 Jun 2023	441,258	93,312	76,591	517,849	(8,401)	(2,975)	(311)	(8,712)

UK	104,775	14,309	12,662	117,437	(1,522)	(329)	(131)	(1,653)
-  of which: HSBC UK Bank plc (ring-fenced bank)	78,249	13,041	2,980	81,229	(1,247)	(193)	(6)	(1,253)
-  of which: HSBC Bank plc (non-ring-fenced bank)	26,526	1,268	9,682	36,208	(275)	(136)	(125)	(400)
France	27,571	4,216	4,152	31,723	(621)	(36)	(4)	(625)
Germany	6,603	252	713	7,316	(154)	-	(3)	(157)
Switzerland	988	635	298	1,286	(8)	-	-	(8)
Hong Kong	144,256	56,093	20,798	165,054	(2,997)	(1,965)	(35)	(3,032)
Australia	11,641	3,106	1,157	12,798	(97)	(1)	-	(97)
India	9,052	1,711	4,267	13,319	(80)	(22)	(10)	(90)
Indonesia	3,214	85	226	3,440	(187)	(1)	-	(187)
Mainland China	31,790	5,752	8,908	40,698	(327)	(167)	(30)	(357)
Malaysia	5,986	1,081	180	6,166	(133)	(15)	-	(133)
Singapore	15,905	3,812	1,192	17,097	(387)	(12)	(1)	(388)
Taiwan	4,701	20	65	4,766	(1)	-	-	(1)
Egypt	1,262	77	101	1,363	(117)	(5)	(1)	(118)
UAE	13,503	1,569	149	13,652	(674)	(152)	-	(674)
US	28,249	5,714	8,640	36,889	(214)	(94)	(26)	(240)
Mexico	9,784	903	717	10,501	(334)	(24)	(1)	(335)
Other	33,922	2,032	2,699	36,621	(467)	(27)	(15)	(482)
At 31 Dec 2022	453,202	101,367	66,924	520,126	(8,320)	(2,850)	(257)	(8,577)

1     Real estate lending within this disclosure corresponds solely to the industry of the borrower on the same basis as the 'Total wholesale lending for loans and advances to banks and customers by stage distribution' on page 84.

Personal lending - loans and advances to customers at amortised cost by country/territory
	Gross carrying amount				Allowance for ECL
	First lien residential mortgages	Other personal	of which: credit cards	Total	First lien residential mortgages	Other personal	of which: credit cards	Total
	$m	$m	$m	$m	$m	$m	$m	$m
UK	164,322	18,452	7,483	182,774	(231)	(841)	(422)	(1,072)
-  of which: HSBC UK Bank plc (ring-fenced bank)	160,792	17,414	7,405	178,206	(227)	(834)	(420)	(1,061)
-  of which: HSBC Bank plc (non-ring-fenced bank)	3,530	1,038	78	4,568	(4)	(7)	(2)	(11)
France1	2,243	20,163	329	22,406	(34)	(70)	(3)	(104)
Germany	-	176	-	176	-	-	-	-
Switzerland	1,447	5,762	-	7,209	(1)	(20)	-	(21)
Hong Kong	105,000	31,633	8,384	136,633	-	(371)	(265)	(371)
Australia	22,062	439	383	22,501	(6)	(21)	(20)	(27)
India	1,356	627	169	1,983	(5)	(15)	(11)	(20)
Indonesia	66	285	140	351	(2)	(11)	(7)	(13)
Mainland China	8,098	801	323	8,899	(3)	(53)	(42)	(56)
Malaysia	2,275	2,073	795	4,348	(24)	(86)	(32)	(110)
Singapore	8,060	5,433	436	13,493	-	(38)	(16)	(38)
Taiwan	5,420	1,288	298	6,708	-	(16)	(4)	(16)
Egypt	-	295	81	295	-	(2)	(1)	(2)
UAE	1,969	1,329	416	3,298	(19)	(80)	(38)	(99)
US	17,458	664	197	18,122	(12)	(24)	(19)	(36)
Mexico	8,079	5,599	2,136	13,678	(162)	(677)	(234)	(839)
Other	6,879	3,694	1,131	10,573	(105)	(97)	(52)	(202)
At 30 Jun 2023	354,734	98,713	22,701	453,447	(604)	(2,422)	(1,166)	(3,026)

UK	154,519	16,793	6,622	171,312	(227)	(838)	(449)	(1,065)
-  of which: HSBC UK Bank plc (ring-fenced bank)	151,188	15,808	6,556	166,996	(222)	(828)	(447)	(1,050)
-  of which: HSBC Bank plc (non-ring-fenced bank)	3,331	985	66	4,316	(5)	(10)	(2)	(15)
France1	30	76	9	106	(14)	(8)	-	(22)
Germany	-	234	-	234	-	-	-	-
Switzerland	1,378	5,096	-	6,474	-	(20)	-	(20)
Hong Kong	101,478	31,409	8,644	132,887	(1)	(352)	(258)	(353)
Australia	21,372	456	396	21,828	(11)	(18)	(18)	(29)
India	1,078	590	162	1,668	(4)	(18)	(13)	(22)
Indonesia	70	278	141	348	(1)	(17)	(12)	(18)
Mainland China	9,305	921	378	10,226	(3)	(61)	(49)	(64)
Malaysia	2,292	2,437	843	4,729	(27)	(92)	(31)	(119)
Singapore	7,501	6,264	422	13,765	-	(35)	(14)	(35)
Taiwan	5,428	1,189	284	6,617	-	(18)	(5)	(18)
Egypt	-	310	83	310	-	(2)	(1)	(2)
UAE	2,104	1,339	426	3,443	(14)	(84)	(41)	(98)
US	16,847	704	213	17,551	(10)	(31)	(23)	(41)
Mexico	6,124	4,894	1,615	11,018	(145)	(593)	(196)	(738)
Other	7,295	5,071	1,150	12,366	(118)	(108)	(51)	(226)
At 31 Dec 2022	336,821	78,061	21,388	414,882	(575)	(2,295)	(1,161)	(2,870)

1     Included in other personal lending as at 30 June 2023 is $18,403m (31 December 2022: nil) guaranteed by Crédit Logement.

Treasury risk

93	Overview
93	Treasury risk management
95	Capital risk in the first half of 2023
98	Liquidity and funding risk in the first half of 2023
100	Sources of funding
101	Interest rate risk in the banking book in the first half of 2023

Overview

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

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

Approach and policy

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

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

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

A summary of our current policies and practices regarding the management of treasury risk is set out on pages 202 to 217 of the Annual Report and Accounts 2022.

Treasury risk management

Key developments in the first half of 2023

-   All of the Group's material operating entities were above regulatory minimum levels of capital, liquidity and funding at 30 June 2023.

-   Following high-profile US and Swiss banking failures in the first quarter of 2023, we validated our existing risk management practices including stress testing and limit setting. We also reviewed our liquidity monitoring and metric assumptions as part of our ILAAP cycle to ensure they continued to cover observed and emerging risks.

-   We continued to improve our analysis and understanding of the drivers of capital volatility and the underlying sensitivities, ensuring these are actively considered in our risk appetite and limit setting processes.

-   As announced in the first quarter of 2023, we reverted to a policy of paying quarterly dividends, with the Board approving an interim dividend of $0.10 per share. On 10 May 2023, we initiated a share buy-back of up to $2bn with an approximately 0.25 percentage point impact on the CET1 capital ratio. This buy-back was completed in July 2023. The Board has announced a further dividend of $0.10 per share, and intends to initiate a further share buy-back of up to $2bn, which is expected to commence shortly.

-   We enhanced the Group consolidation methodology regarding the liquidity available to the Group from underlying subsidiaries. This resulted in a change to the available liquidity reported in the liquidity coverage ratio ('LCR') and increased the Group LCR by approximately 6%, on a spot basis, at 30 June 2023.

-   As announced by the Bank of England's Financial Policy Committee, the UK countercyclical capital buffer rate increased from 1% to 2%, effective July 2023 in line with the usual 12‑month implementation lag. The change is expected to increase our CET1 requirement by approximately 0.2 percentage points.

-   We continued to increase the stabilisation of our net interest income ('NII') as interest rate expectations fluctuated, driven by central bank rate increases and a reassessment of the trajectory of inflation in major economies.

-   Following the acquisition of SVB UK in the first quarter of 2023, we launched HSBC Innovation Banking in June, combining the expertise of SVB UK with our international network. We are in the process of integrating the staff, assets and liabilities of SVB UK into the Group. The acquisition was funded from existing resources, and the impact on our Group LCR and CET1 ratio is minimal.

-   During 1Q23, the significant interest rate rises in France resulted in the completion of the planned sale of our retail banking operations in France becoming less certain, as the capital required to be held by the buyer at completion of the transaction was expected to increase significantly. As a result, we were required to change the accounting classification of our retail banking operations in France to no longer be classified as held for sale. The impairment on classifying the disposal as held for sale, which had resulted in an approximately 0.3 percentage point reduction in the Group's CET1 ratio last year, was reversed. In June 2023, we agreed new terms for the sale of these operations that will involve HSBC retaining a portfolio of loans. The transaction remains subject to information and consultation processes with respective works councils and regulatory approvals, and the parties aim to complete the transaction on 1 January 2024. An estimated pre-tax loss of up to $2.2bn would be recognised in the second half of 2023 if the retail operations in France were reclassified as held for sale.

-   We entered into an agreement to sell our banking business in Canada to the Royal Bank of Canada in 2022. The transaction is now expected to complete in the first quarter of 2024, subject to regulatory and governmental approvals. We continue to classify our banking business in Canada as held for sale. We remain committed to consider the payment of a special dividend of $0.21 per share as a priority use of the proceeds from the sale of our banking business in Canada in the first half of 2024. The remaining sale proceeds are expected to accrue into CET1 capital. We intend to use any excess capital to supplement share buy-backs.

For quantitative disclosures on capital ratios, own funds and RWAs, see pages 95 to 98. For quantitative disclosures on liquidity and funding metrics, see pages 98 to 100. For quantitative disclosures on interest rate risk in the banking book, see pages 101 to 102.

Capital, liquidity and funding risk management processes

Assessment and risk appetite

Our capital management policy is supported by a global capital management framework. The framework sets out our approach to determining key capital risk appetites including CET1, total capital, minimum requirements for own funds and eligible liabilities ('MREL'), leverage ratio and double leverage. Our ICAAP is an assessment of the Group's capital position, outlining both regulatory and internal capital resources and requirements resulting from HSBC's business model, strategy, risk profile and management, performance and planning, risks to capital, and the implications of stress testing. Our assessment of capital adequacy is driven by an assessment of risks. These risks include credit, market, operational, pensions, insurance, structural foreign exchange, interest rate risk in the banking book and Group risk. Climate risk is also considered as part of the ICAAP, and we are continuing to develop our approach. Subsidiaries prepare ICAAPs in line with global guidance, while considering their local regulatory regimes to determine their own risk appetites and ratios.

HSBC Holdings is the provider of equity capital and MREL-eligible debt to its subsidiaries, and also provides them with non-equity capital where necessary. These investments are funded by HSBC Holdings' own equity capital and MREL-eligible debt. MREL includes own funds and liabilities that can be written down or converted into capital resources in order to absorb losses or recapitalise a bank in the event of its failure. In line with our existing structure and business model, HSBC has three resolution groups - the European resolution group, the Asian resolution group and the US resolution group. There are some smaller entities that fall outside these resolution groups.

HSBC Holdings seeks to maintain a prudent balance between the composition of its capital and its investments in subsidiaries.

As a matter of long-standing policy, the holding company retains a substantial holdings capital buffer comprising high-quality liquid assets ('HQLA'), which at 30 June 2023 was in excess of $26bn and within risk appetite.

We aim to ensure that management has oversight of our liquidity and funding risks at Group and entity level through robust governance, in line with our risk management framework. We manage liquidity and funding risk at an operating entity level, in accordance with globally consistent policies, procedures and reporting standards. This ensures that obligations can be met in a timely manner, in the jurisdiction where they fall due.

Operating entities are required to meet internal minimum requirements and any applicable regulatory requirements at all times. These requirements are assessed through our ILAAP, which ensures that operating entities have robust strategies, policies, processes and systems for the identification, measurement, management and monitoring of liquidity risk over an appropriate set of time horizons, including intra-day. The ILAAP informs the validation of risk tolerance and the setting of risk appetite. It also assesses the capability to manage liquidity and funding effectively in each major entity. These metrics are set and managed locally but are subject to robust global review and challenge to ensure consistency of approach and application of the Group's policies and controls.

Planning and performance

Capital and risk-weighted asset ('RWA') plans, as well as funding and liquidity plans, form part of the annual financial resource plan that is approved by the Board.

Capital and RWA forecasts are submitted to the Group Executive Committee on a monthly basis, and capital and RWAs are monitored and managed against the plan. The responsibility for global capital allocation principles rests with the Group Chief Financial Officer, supported by the Group Capital Management Meeting. This is a specialist forum addressing capital management, reporting into the HSBC Holdings Asset Liability Management Committee.

The Board-level appetite measures for funding and liquidity are the LCR and net stable funding ratio ('NSFR'), together with an internal liquidity metric. In addition, we use a wider set of measures to manage an appropriate funding and liquidity profile, including legal entity depositor concentration limits, intra-day liquidity, forward-looking funding assessments and other key measures.

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

Risks to capital and liquidity

Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs, capital and/or liquidity position. Downside and Upside scenarios are assessed against our management objectives, and mitigating actions are assigned as necessary. We closely monitor future regulatory changes, and continue to evaluate the impact of these upon our capital and liquidity requirements, particularly those related to the UK's implementation of the outstanding measures to be implemented from the Basel III reforms ('Basel 3.1').

Regulatory developments

Future changes to our ratios will occur with the implementation of Basel 3.1. The Prudential Regulation Authority ('PRA') has published its consultation paper on the UK's implementation, with a proposed implementation date of 1 January 2025. We currently do not foresee a material net impact on our ratios from the initial implementation. The RWA output floor under Basel 3.1 is proposed to be subject to a five-year transitional provision. Any impact from the output floor would be towards the end of the transition period.

The PRA has published a consultation paper to remove the CET1 deduction requirement in the PRA Rulebook regarding non-performing exposures that are treated as insufficiently covered by firms' accounting provisions. The changes are anticipated to come into force in the second half of 2023, with an estimated marginal increase to the capital base based on initial assessment.

Regulatory reporting processes and controls

The quality of regulatory reporting remains a key priority for management and regulators. We are progressing with a comprehensive programme to strengthen our processes, improve consistency and enhance controls across regulatory reports, focusing on our prudential regulatory reporting and other priority regulatory reports globally.

Our ongoing programme of work on our prudential regulatory reports is being phased over a number of years, prioritising RWA, capital and liquidity reporting. This programme includes both data enhancement and the transformation of the reporting systems that they flow into. While this programme continues, there may be further impacts on some of our regulatory ratios, such as CET1, LCR and NSFR, as we implement recommended changes and continue to enhance our controls. We are also establishing enhanced risk stewardship and assurance over our regulatory reports and have developed a strategic inventory and tooling to drive consistent standards and accountability.

Stress testing and recovery and resolution planning

The Group uses stress testing to inform management of the capital and liquidity needed to withstand internal and external shocks, including a global economic downturn or a systems failure. Stress testing results are also used to inform risk mitigation actions, allocation of financial resources, and recovery and resolution planning, as well as to re-evaluate business plans where analysis shows capital, liquidity and/or returns do not meet their target.

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

We maintain recovery plans for the Group and material entities, which set out potential options management could take in a range of stress scenarios that could result in a breach of capital or liquidity buffers. The Group recovery plan sets out the framework and governance arrangements to support restoring HSBC to a stable and viable position, and so lowering the probability of failure from either idiosyncratic company-specific stress or systemic market-wide issues. Our material entities' recovery plans provide detailed actions that management would consider taking in a stress scenario should their positions deteriorate and threaten to breach risk appetite and regulatory minimum levels. This is to help ensure that HSBC entities can stabilise their financial position and recover from financial losses in a stress environment.

The Group also has capabilities, resources and arrangements in place to address the unlikely event that HSBC might not be recoverable and would therefore need to be resolved by regulators. The Group performed the inaugural Resolvability Assessment Framework self-assessment during 2021 to meet the Bank of England's requirements, which came into effect on 1 January 2022.

Overall, HSBC's recovery and resolution planning helps safeguard the Group's financial and operational stability. The Group is committed to further developing its recovery and resolution capabilities, including in relation to the Bank of England's Resolvability Assessment Framework.

Measurement of interest rate risk in the banking book processes

Assessment and risk appetite

Interest rate risk in the banking book is the risk of an adverse impact to earnings or capital due to changes in market interest rates. It is generated by our non-traded assets and liabilities, specifically loans, deposits and financial instruments that are not held for trading intent or in order to hedge positions held with trading intent. Interest rate risk that can be economically hedged may be transferred to Global Treasury.

Hedging is generally executed through interest rate derivatives or fixed-rate government bonds. Any interest rate risk that Global Treasury cannot economically hedge is not transferred and will remain within the global business where the risks originate.

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

-   net interest income sensitivity; and

-   economic value of equity sensitivity;

Net interest income sensitivity

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

NII sensitivity figures represent the effect of pro forma movements in projected yield curves based on a static balance sheet size and structure, except for certain mortgage products where balances are impacted by interest rate sensitive prepayment. These sensitivity calculations do not incorporate actions that would be taken by Global Treasury or in the business that originates the risk to mitigate the effect of interest rate movements.

The NII sensitivity calculations assume that interest rates of all maturities move by the same amount in the 'up-shock' scenario. The sensitivity calculations in the 'down-shock' scenarios reflect no floors to the shocked market rates. However, customer product-specific interest rate floors are recognised where applicable.

Economic value of equity sensitivity

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

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

Hold-to-collect-and-sell stressed value at risk ('VaR') is a quantification of the potential losses to a 99% confidence level of the portfolio of high-quality liquid assets held under a hold-to-collect-and-sell business model in the Markets Treasury business. The portfolio is accounted for at fair value through other comprehensive income together with the derivatives held in designated hedging relationships with these securities. The mark-to-market of this portfolio therefore has an impact on CET1.

Stressed VaR is quantified based on the worst losses over a one-year period, using a historical time series stretching back to the beginning of 2007, and the assumed holding period is 60 days. At the end of June 2023, the stressed VaR of the portfolio was $3.4bn (31 December 2022: $2.15bn). The increase was primarily due to an increase in duration risk in this portfolio during the period.

Capital risk in the first half of 2023

Capital overview

Capital adequacy metrics
	At
	30 Jun	31 Dec
	2023	2022
Risk-weighted assets ('RWAs') ($bn)
Credit risk1	690.5	679.1
Counterparty credit risk1	38.6	37.1
Market risk	43.0	37.6
Operational risk	87.4	85.9
Total RWAs	859.5	839.7
Capital on a transitional basis ($bn)
Common equity tier 1 capital	126.4	119.3
Tier 1 capital	145.8	139.1
Total capital	170.0	162.4
Capital ratios on a transitional basis (%)
Common equity tier 1 ratio	14.7	14.2
Tier 1 ratio	17.0	16.6
Total capital ratio	19.8	19.3
Capital on an end point basis ($bn)
Common equity tier 1 capital	126.4	119.3
Tier 1 capital	145.8	139.1
Total capital	165.9	157.2
Capital ratios on an end point basis (%)
Common equity tier 1 ratio	14.7	14.2
Tier 1 ratio	17.0	16.6
Total capital ratio	19.3	18.7
Liquidity coverage ratio ('LCR')2
Total high-quality liquid assets ($bn)	631.2	647.0
Total net cash outflow ($bn)	477.7	490.8
LCR (%)	132.1	131.8

1   From 1 January 2023, RWAs related to free deliveries have been allocated to credit risk, having previously been classified under counterparty credit risk.

2   The LCR figures presented in the above table are based on average values. The LCR is the average month-end values over the preceding 12 months.

References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.

Capital figures and ratios in the table above are calculated in accordance with the revised Capital Requirements Regulation and Directive, as implemented ('CRR II'). The table presents them under the transitional arrangements in CRR II for capital instruments and after their expiry, known as the end point.

Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently submitted in regulatory filings. Where differences are significant, we will restate in subsequent periods.

Own funds

Own funds disclosure
		At
		30 Jun	31 Dec
		2023	2022
Ref*		$m	$m
6	Common equity tier 1 capital before regulatory adjustments1	164,015	158,092
28	Total regulatory adjustments to common equity tier 11	(37,597)	(38,801)
29	Common equity tier 1 capital	126,418	119,291
36	Additional tier 1 capital before regulatory adjustments	19,442	19,836
43	Total regulatory adjustments to additional tier 1 capital	(60)	(60)
44	Additional tier 1 capital	19,382	19,776
45	Tier 1 capital	145,800	139,067
51	Tier 2 capital before regulatory adjustments	25,668	24,779
57	Total regulatory adjustments to tier 2 capital	(1,447)	(1,423)
58	Tier 2 capital	24,221	23,356
59	Total capital	170,021	162,423
60	Total risk-weighted assets	859,545	839,720
	Capital ratios	%	%
61	Common equity tier 1 ratio	14.7	14.2
62	Tier 1 ratio	17.0	16.6
63	Total capital ratio	19.8	19.3

*     These are references to lines prescribed in the Pillar 3 'Own funds disclosure' template.

1   On adoption of IFRS 17 'Insurance Contracts', comparative data previously published under IFRS 4 'Insurance Contracts' have been restated from the 1 January 2022 transition date, with no impact on CET1 and total capital.

At 30 June 2023, our common equity tier 1 ('CET1') capital ratio increased to 14.7% from 14.2% at 31 December 2022, reflecting an increase in CET1 capital of $7.1bn, partly offset by an increase in RWAs of $19.8bn. The key drivers of the overall rise in our CET1 ratio during the period were:

-   a 0.7 percentage point increase from the $7.0bn capital generation through profits less dividends, adjusted for the $2.0bn share buy-back announced with our 1Q23 results and completed in July 2023;

-   a 0.3 percentage point increase from the reversal of the impairment relating to the planned sale of our retail banking operations in France, and the provisional gain on the acquisition of SVB UK;

-   a 0.1 percentage point increase, driven by regulatory change that reduced the risk weighting of residential mortgages in Hong Kong; and

-   a 0.6 percentage point fall in the CET1 ratio, driven mainly by an increase in the underlying RWAs and deductions for investment in financial sector entities, intangible assets and excess expected loss.

At 30 June 2023, our Pillar 2A requirement, set by the PRA's Individual Capital Requirement based on a point-in-time assessment, was equivalent to 2.6% of RWAs, of which 1.5% was met by CET1 capital. Throughout the first half of 2023, we complied with the PRA's regulatory capital adequacy requirements.

Risk-weighted assets

RWAs by global business
	WPB	CMB1	GBM1	Corporate Centre	Total RWAs
	$bn	$bn	$bn	$bn	$bn
Credit risk	152.1	324.1	135.8	78.5	690.5
Counterparty credit risk	1.7	1.1	34.7	1.1	38.6
Market risk	1.3	1.4	27.2	13.1	43.0
Operational risk	31.5	27.2	29.3	(0.6)	87.4
At 30 Jun 2023	186.6	353.8	227.0	92.1	859.5
At 31 Dec 2022	182.9	342.4	225.9	88.5	839.7

1   In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers' respective needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data have been re-presented accordingly.

RWAs by legal entities1
	HSBC UK Bank plc	HSBC Bank plc	The Hong Kong and Shanghai Banking Corporation Limited	HSBC Bank Middle East Limited	HSBC North America Holdings Inc	HSBC Bank Canada	Grupo Financiero HSBC, S.A. de C.V.	Other trading entities	Holding companies, shared service centres and intra-Group eliminations	Total RWAs
	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn
Credit risk	109.2	72.7	318.4	17.8	59.3	27.1	24.4	53.2	8.4	690.5
Counterparty credit risk	0.5	18.7	10.1	0.8	3.3	0.5	0.8	3.9	-	38.6
Market risk2	0.2	21.0	23.6	2.6	3.1	0.7	0.7	3.7	9.5	43.0
Operational risk	15.8	15.0	39.4	3.0	7.4	3.1	4.8	5.5	(6.6)	87.4
At 30 Jun 2023	125.7	127.4	391.5	24.2	73.1	31.4	30.7	66.3	11.3	859.5
At 31 Dec 2022	110.9	127.0	407.0	22.5	72.5	31.9	26.7	60.3	8.1	839.7

1     Balances are on a third-party Group consolidated basis.

2     Market risk RWAs are non-additive across the principal entities due to diversification effects within the Group.

RWA movement by global businesses by key driver
	Credit risk, counterparty credit risk and operational risk
	WPB	CMB1	GBM1	Corporate Centre	Market risk	Total RWAs
	$bn	$bn	$bn	$bn	$bn	$bn
RWAs at 1 Jan 2023	181.2	341.3	202.3	77.3	37.6	839.7
Asset size	7.8	(0.4)	1.1	4.6	6.6	19.7
Asset quality	0.5	(0.2)	-	(1.7)	-	(1.4)
Model updates	(0.9)	-	-	-	(0.1)	(1.0)
Methodology and policy	(5.3)	(0.7)	(3.1)	(1.2)	(1.2)	(11.5)
Acquisitions and disposals	-	9.5	-	-	0.1	9.6
Foreign exchange movements2	2.0	2.9	(0.5)	-	-	4.4
Total RWA movement	4.1	11.1	(2.5)	1.7	5.4	19.8
RWAs at 30 Jun 2023	185.3	352.4	199.8	79.0	43.0	859.5

1     In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers' respective needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data have been re-presented accordingly.

2     Credit risk foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars based on the underlying transactional currencies.

RWA movement by legal entities by key driver1
	Credit risk, counterparty credit risk and operational risk
	HSBC UK Bank plc	HSBC Bank plc	The Hong Kong and Shanghai Banking Corporation Limited	HSBC Bank Middle East Limited	HSBC North America Holdings Inc	HSBC Bank Canada	Grupo Financiero HSBC, S.A. de C.V.	Other trading entities	Holding companies, shared service centres and intra-Group eliminations	Market risk	Total RWAs
	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn	$bn
RWAs at 1 Jan 2023	110.8	106.5	378.4	20.8	69.5	31.1	26.2	58.0	0.8	37.6	839.7
Asset size	1.2	(0.4)	4.4	1.6	0.7	(0.7)	0.8	4.8	0.7	6.6	19.7
Asset quality	0.5	(1.1)	(3.3)	(0.5)	0.4	0.2	0.1	2.2	0.1	-	(1.4)
Model updates	(0.8)	0.1	(0.2)	-	-	-	-	-	-	(0.1)	(1.0)
Methodology and policy	(1.7)	(0.7)	(8.1)	(0.3)	(0.6)	(0.5)	-	1.5	0.1	(1.2)	(11.5)
Acquisitions and disposals	9.5	-	-	-	-	-	-	-	-	0.1	9.6
Foreign exchange movements2	6.0	2.0	(3.3)	-	-	0.6	2.9	(3.9)	0.1	-	4.4
Total RWA movement	14.7	(0.1)	(10.5)	0.8	0.5	(0.4)	3.8	4.6	1.0	5.4	19.8
RWAs at 30 Jun 2023	125.5	106.4	367.9	21.6	70.0	30.7	30.0	62.6	1.8	43.0	859.5

1     Balances are on a third-party Group consolidated basis.

2     Credit risk foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars based on the underlying transactional currencies.

RWAs rose by $19.8bn during the first half of the year. Excluding foreign currency translation differences of $4.4bn, RWAs increased by $15.4bn, predominantly due to the acquisition of SVB UK, and RWA asset size growth. This was partly offset by reductions due to a regulatory change to the risk weighting of residential mortgages in Hong Kong.

Asset size

WPB RWAs rose by $7.8bn, primarily due to sovereign exposures in other trading entities and retail lending and mortgage growth, mainly in Hong Kong, Mexico and HSBC UK.

The $6.6bn increase in market risk RWAs was mainly attributed to  heightened market volatility impacting value at risk averages. Additional RWAs were primarily driven by an incremental risk charge resulting from higher exposures at risk and the hedges related to the agreed sale of our banking business in Canada.

Corporate Centre RWAs rose by $4.6bn, which was driven by increased sovereign exposures mainly in Asia, North America and HSBC Bank plc, and higher thresholds for the recognition of significant investments in financial sector entities in Asia.

GBM RWAs increased by $1.1bn, largely as a result of mark-to-market movements in counterparty credit risk in HSBC Bank plc, Asia and Mexico. These movements were partly offset by a decline in corporate exposures, mainly in Asia and HSBC Bank plc.

The $0.4bn fall in CMB RWAs reflected lower corporate lending mainly in Asia and HSBC Bank plc, which was partly offset by a rise in overdrafts in HSBC UK and HSBC Bank plc.

The RWAs of our global businesses also included the RWAs of other trading entities, which reflected an increase of $4.8bn, primarily due to increased sovereign, corporate and central counterparty exposures.

Asset quality

The $1.4bn RWA decrease was mostly driven by portfolio mix changes, mainly in Asia and HSBC Bank plc, which were partly offset by unfavourable movements due to sovereign rating downgrades in Argentina and Egypt.

Model updates

The $1.0bn fall in RWAs was mainly due to the implementation of a new retail mortgage model, notably in HSBC UK, and the application

of a new model for premium financing and wealth portfolio lending in Asia.

Acquisitions and disposals

The acquisition of SVB UK led to an RWA increase of $9.6bn.

Methodology and policy

Regulatory changes related to the risk weighting of residential mortgages in Hong Kong led to a $7.7bn fall in RWAs in WPB.

A further decline of RWAs across our global businesses was caused by risk parameter refinements, which was partly offset by changes to risk weights on certain exposures in SAB.

Allocation methodology changes related to investments in insurance subsidiaries led to a transfer of RWAs from Corporate Centre to WPB. In addition, the transfer of Global Banking clients in Australia and Indonesia increased RWAs in CMB, and decreased RWAs in GBM.

The $1.2bn decrease in market risk RWAs mainly reflected a change in capitalisation methodology of white metals and a reduction in transactional foreign exchange exposures relating to a pension surplus.

Leverage ratio¹

	At
	30 Jun	31 Dec
	2023	2022
	$bn	$bn
Tier 1 capital (leverage)	145.8	139.1
Total leverage ratio exposure	2,497.9	2,417.2
	%	%
Leverage ratio	5.8	5.8

1   Leverage ratio calculation is in line with the PRA's UK leverage rules. This includes IFRS 9 transitional arrangement and excludes central bank claims. At 30 June 2023, the IFRS 9 add-back to CET1 capital and the related tax charge were immaterial.

Our leverage ratio was 5.8% at 30 June 2023, unchanged from 31 December 2022. The increase in tier 1 capital was offset by a rise in the leverage exposure, primarily due to growth in the balance sheet.

At 30 June 2023, our UK minimum leverage ratio requirement of 3.25% was supplemented by a leverage ratio buffer of 0.9%, made up of an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.2%.

These buffers translated into capital values of $17.5bn and $5.0bn respectively. We exceeded these leverage requirements.

Regulatory transitional arrangements for IFRS 9 'Financial Instruments'

We have adopted the regulatory transitional arrangements in CRR II for IFRS 9, including paragraph four of article 473a. These allow banks to add back to their capital base a proportion of the impact that IFRS 9 has upon their loan loss allowances. Our capital and ratios are presented under these arrangements throughout the tables in this section, including the end point figures. At 30 June 2023, the add-back to CET1 capital and the related tax charge were immaterial.

Regulatory disclosures

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make financial services firms more transparent by requiring publication of wide-ranging information on their risks, capital and management.

For further details, refer to our Pillar 3 Disclosures at 30 June 2023, which is expected to be published on or around 8 August 2023 at www.hsbc.com/investors.

Liquidity and funding risk in the first half of 2023

Liquidity metrics

At 30 June 2023, all of the Group's material operating entities were above regulatory minimum levels.

Each entity maintains sufficient unencumbered liquid assets to comply with local and regulatory requirements. The liquidity value of these liquid assets for each entity is shown in the following table along with the individual LCR levels on a local regulatory requirements basis wherever applicable. Where local regulatory requirements are not applicable, the PRA LCR is shown. The local basis may differ from PRA measures due to differences in the way regulators have implemented the Basel III standards.

Each entity maintains a sufficient stable funding profile and it is assessed by using the PRA NSFR or other appropriate metrics.

In addition to regulatory metrics, HSBC uses a wide set of measures to manage its liquidity and funding profile.

The Group liquidity and funding position on an average basis is analysed in the following sections.

Operating entities' liquidity
	At 30 Jun 2023
	LCR6	HQLA	Net outflows	NSFR6
	%	$bn	$bn	%
HSBC UK Bank plc (ring-fenced bank)1	213	131	61	162
HSBC Bank plc (non-ring-fenced bank)2	149	138	93	117
The Hongkong and Shanghai Banking Corporation - Hong Kong branch3	180	146	81	127
HSBC Singapore4	258	23	9	170
Hang Seng Bank	255	55	21	159
HSBC Bank China	177	25	14	135
HSBC Bank USA	169	81	48	130
HSBC Continental Europe5	159	70	44	136
HSBC Middle East - UAE branch	278	12	4	166
HSBC Canada	162	22	13	125
HSBC Mexico	144	8	6	125

	At 31 Dec 2022
HSBC UK Bank plc (ring-fenced bank)1	226	136	60	164
HSBC Bank plc (non-ring-fenced bank)2	143	128	90	115
The Hongkong and Shanghai Banking Corporation - Hong Kong branch3	179	147	82	130
HSBC Singapore4	247	21	9	173
Hang Seng Bank	228	50	22	156
HSBC Bank China	183	23	13	132
HSBC Bank USA	164	85	52	131
HSBC Continental Europe5	151	55	37	132
HSBC Middle East - UAE branch	239	12	5	158
HSBC Canada	149	22	15	122
HSBC Mexico	155	8	5	129

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

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

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

4     HSBC Singapore includes HSBC Bank Singapore Limited and The Hongkong and Shanghai Banking Corporation - Singapore branch. Liquidity and funding risk is monitored and controlled at country level in line with the local regulator's approval.

5   In response to the requirement for an intermediate parent undertaking in line with EU Capital Requirements Directive ('CRD V'), HSBC Continental Europe acquired control of HSBC Germany and HSBC Bank Malta on 30 November 2022. The averages for LCR and NSFR include the impact of the inclusion of the two entities from November 2022.

6     The LCR and NSFR ratios presented in the above table are based on average values. The LCR is the average of the preceding 12 months. The NSFR is the average of the preceding four quarters. Prior period numbers have been restated for consistency.

Consolidated liquidity metrics

Liquidity coverage ratio

At 30 June 2023, the average HQLA held at entity level amounted to $796bn (31 December 2022: $812bn), a decrease of $16bn. HSBC has maintained a revised approach to the application of the requirements under the EC Delegated Act and the PRA Rulebook. This approach was used to assess the limitations in the fungibility of entity liquidity around the Group and resulted in an adjustment of $165bn to LCR HQLA and $7bn to LCR inflows. The change in methodology was designed to better incorporate local regulatory restrictions on the transferability of liquidity.

	At1
	30 Jun	30 Jun	31 Dec
	2023	2022	2022
	$bn	$bn	$bn
High-quality liquid assets (in entities)	796	848	812
EC Delegated Act/PRA Rulebook adjustment2	(172)	(181)	(174)
Group LCR HQLA	631	676	647
Net outflows	478	500	491
Liquidity coverage ratio	132%	135%	132%

1     Group LCR numbers above are based on average month-end values of the preceding 12 months.

2     This includes adjustments made to high-quality liquidity assets and inflows in entities to reflect liquidity transfer restrictions.

Liquid assets

After the $165bn adjustment, the Group LCR HQLA of $631bn (31 December 2022: $647bn) was held in a range of asset classes and currencies. Of these, 97% were eligible as level 1 (31 December 2022: 97%).

The following tables reflect the composition of the liquidity pool by asset type and currency at 30 June 2023:

Liquidity pool by asset type1
	Liquidity pool	Cash	Level 12	Level 22
	$bn	$bn	$bn	$bn
Cash and balance at central bank	321	321	-	-
Central and local government bonds	296	-	282	14
Regional government and public sector entities	2	-	2	-
International organisation and multilateral development banks	8	-	8	-
Covered bonds	3	-	1	2
Other	1	-	-	1
Total at 30 Jun 2023	631	321	293	17
Total at 31 Dec 2022	647	344	284	19

1     Group liquid assets numbers are based on average month-end values over the preceding 12 months.

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

Liquidity pool by currency1
	$	£	€	HK$	Other	Total
	$bn	$bn	$bn	$bn	$bn	$bn
Liquidity pool at 30 Jun 2023	173	179	104	48	127	631
Liquidity pool at 31 Dec 2022	167	191	98	54	137	647

1   Group liquid assets numbers are based on average month-end values over the preceding 12 months.

Sources of funding

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

The following 'Funding sources' and 'Funding uses' tables provide a view of how our consolidated balance sheet is funded. In practice, all the principal operating entities are required to manage liquidity and funding risk on a stand-alone basis.

The tables analyse our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. Assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.

In 1H23, the level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets.

Funding sources
	At
	30 Jun	31 Dec
	2023	2022
	$m	$m
Customer accounts	1,595,769	1,570,303
Deposits by banks	68,709	66,722
Repurchase agreements - non-trading	170,110	127,747
Debt securities in issue	85,471	78,149
Cash collateral, margin and settlement accounts	104,521	88,476
Liabilities of disposal groups held for sale1	87,241	114,597
Subordinated liabilities	23,286	22,290
Financial liabilities designated at fair value	139,618	127,321
Insurance contract liabilities	115,756	108,816
Trading liabilities	81,228	72,353
-  repos	16,727	16,254
-  stock lending	3,890	3,541
-  other trading liabilities	60,611	52,558
Total equity	191,651	185,197
Other balance sheet liabilities	378,116	387,315
	3,041,476	2,949,286

Funding uses
	At
	30 Jun	31 Dec
	2023	2022
	$m	$m
Loans and advances to customers	959,558	923,561
Loans and advances to banks	100,921	104,475
Reverse repurchase agreements - non-trading	258,056	253,754
Cash collateral, margin and settlement accounts	99,060	82,984
Assets held for sale1	95,480	115,919
Trading assets	255,387	218,093
-  reverse repos	16,961	14,798
-  stock borrowing	9,381	10,706
-  other trading assets	229,045	192,589
Financial investments	407,933	364,726
Cash and balances with central banks	307,733	327,002
Other balance sheet assets	557,348	558,772
	3,041,476	2,949,286

1   'Liabilities of disposal groups held for sale' includes $80bn and 'Assets held for sale' includes $87bn in respect of the planned sale of our banking business in Canada.  

Interest rate risk in the banking book in the first half of 2023

Net interest income sensitivity

The following tables set out the assessed impact to a hypothetical base case projection of our net interest income ('NII'), excluding pensions, insurance and investment in subsidiaries, under the following scenarios:

-   an immediate shock of 25 basis points ('bps') to the current market-implied path of interest rates across all currencies on 1 July 2023 (effects over one year and five years); and

-   an immediate shock of 100bps to the current market-implied path of interest rates across all currencies on 1 July 2023 (effects over one year and five years).

The sensitivities shown represent a hypothetical simulation of the

base case NII, assuming a static balance sheet (specifically no assumed migration from current account to term deposits), no management actions from Global Treasury and a simplified 50% pass-on assumption applied for material entities. This also incorporates the

effect of interest rate behaviouralisation, hypothetical managed rate

product pricing assumptions, prepayment of mortgages and deposit

stability. The sensitivity calculations exclude pensions, insurance and

investments in subsidiaries.

The NII sensitivity analysis performed in the case of a down-shock

does not include floors to market rates, and it does not include floors

on some wholesale assets and liabilities. However, floors have been

maintained for deposits and loans to customers where this is

contractual or where negative rates would not be applied.

As market and policy rates move, the degree to which these changes are passed on to customers will vary based on a number of factors, including the absolute level of market rates, regulatory and contractual frameworks, and competitive dynamics in particular markets. To aid comparability between markets, we have simplified the basis of preparation for our disclosure, and have used a 50% pass-on assumption for major entities on certain interest-bearing deposits. Our pass-through asset assumptions are largely in line with our contractual agreements or established market practice, which typically results in a significant portion of interest rate changes being passed on.

Immediate interest rate rises of 25bps and 100bps would increase projected NII for the 12 months to 30 June 2024 by $550m and $2,168m, respectively. Conversely, falls of 25bps and 100bps would decrease projected NII for the 12 months to 30 June 2024 by $615m and $2,604m, respectively.

The sensitivity of NII for 12 months decreased by $1,367m in the plus 100bps parallel shock and decreased by $1,365m in the minus 100bps parallel shock, comparing 30 June 2023 with 31 December 2022.

The decrease in the sensitivity of NII for 12 months in the minus 100bps parallel shock was mainly driven by management actions to stabilise NII, coupled with deposit migration and reduction in the net interest-bearing banking book.

The sensitivities broken down by currency in the tables below do not include the impact of vanilla FX swaps used to optimise cash management across the Group.

NII sensitivity to an instantaneous change in yield curves (12 months) - 1 year NII sensitivity by currency
			Currency
	US dollar	HK dollar	Sterling	Euro	Other	Total
	$m	$m	$m	$m	$m	$m
Change in Jul 2023 to Jun 2024 (based on balance sheet at 30 Jun 2023)
+25bps	(187)	125	140	147	325	550
-25bps	187	(132)	(173)	(165)	(332)	(615)
+100bps	(747)	471	575	596	1,273	2,168
-100bps	695	(556)	(703)	(657)	(1,383)	(2,604)
Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 Dec 2022)
+25bps	(66)	107	245	167	431	884
-25bps	64	(115)	(289)	(194)	(439)	(973)
+100bps	(267)	413	1,026	674	1,689	3,535
-100bps	236	(476)	(1,177)	(765)	(1,787)	(3,969)

NII sensitivity to an instantaneous change in yield curves (5 years) - cumulative 5 years NII sensitivity by currency
			Currency
	US dollar	HK dollar	Sterling	Euro	Other	Total
	$m	$m	$m	$m	$m	$m
Change in Jul 2023 to Jun 2028 (based on balance sheet at 30 Jun 2023)
+25bps	(70)	804	1,816	900	2,130	5,580
-25bps	49	(911)	(1,851)	(918)	(2,194)	(5,825)
+100bps	(694)	3,059	7,320	3,605	8,337	21,627
-100bps	43	(4,800)	(7,444)	(3,755)	(8,991)	(24,947)
Change in Jan 2023 to Dec 2027 (based on balance sheet at 31 Dec 2022)
+25bps	192	668	2,315	924	2,500	6,599
-25bps	(282)	(688)	(2,336)	(1,044)	(2,498)	(6,848)
+100bps	673	2,401	9,254	3,764	9,765	25,857
-100bps	(1,522)	(3,004)	(9,454)	(4,173)	(10,317)	(28,470)

NII sensitivity to an instantaneous change in yield curves (5 years) - NII sensitivity by years
	Year 1	Year 2	Year 3	Year 4	Year 5	Total
	$m	$m	$m	$m	$m	$m
Change in Jul 2023 to Jun 2028 (based on balance sheet at 30 Jun 2023)
+25bps	550	854	1,172	1,409	1,595	5,580
-25bps	(615)	(892)	(1,221)	(1,450)	(1,647)	(5,825)
+100bps	2,168	3,307	4,523	5,444	6,185	21,627
-100bps	(2,604)	(3,909)	(5,310)	(6,188)	(6,936)	(24,947)
Change in Jan 2023 to Dec 2027 (based on balance sheet at 31 Dec 2022)
+25bps	884	1,145	1,378	1,550	1,642	6,599
-25bps	(973)	(1,178)	(1,420)	(1,579)	(1,699)	(6,848)
+100bps	3,535	4,565	5,367	5,962	6,429	25,857
-100bps	(3,969)	(4,944)	(5,925)	(6,565)	(7,067)	(28,470)

Non-trading portfolios

Value at risk of the non-trading portfolios

Non-trading portfolios comprise positions that primarily arise from the interest rate management of our retail and wholesale banking assets and liabilities, financial investments measured at fair value through other comprehensive income or at amortised cost, and exposures arising from our insurance operations.

The VaR for non-trading activity was broadly unchanged at 30 June 2023, compared with 31 December 2022. This followed increases in the second half of 2022 that were primarily due to higher duration risk exposures in Global Treasury, as well as from more volatile interest rate tail scenarios.

Non-trading VaR includes non-trading financial instruments held in portfolios managed by Markets Treasury. The management of interest rate risk in the banking book is described further in 'Net interest income sensitivity' on page 95.

The Group non-trading VaR for the half-year to 30 June 2023 is shown in the following table.

Non-trading VaR, 99% 1 day
	Interest rate	Credit spread	Portfolio diversification1	Total
	$m	$m	$m	$m
Half-year to 30 Jun 2023	156.3	84.3	(66.6)	173.9
Average	134.8	69.0	(49.8)	153.9
Maximum	158.9	84.3		185.7
Minimum	108.8	55.2		127.0
Half-year to 30 Jun 2022	113.3	53.3	(45.7)	120.8
Average	148.4	61.9	(36.7)	173.7
Maximum	225.5	84.7		265.3
Minimum	109.2	50.3		119.1
Half-year to 31 Dec 2022	159.8	56.6	(45.3)	171.1
Average	121.2	52.1	(35.1)	138.2
Maximum	159.8	59.1		183.7
Minimum	98.3	43.4		106.3

1     When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

Non-trading VaR excludes equity risk on securities held at fair value, non-trading book foreign exchange risk and the risks managed in HSBC Holdings arising from long-term capital issuance.

HSBC's management of market risk in the non-trading book is described in the 'Treasury risk' section on page 93.

For disclosure of the stressed value at risk of the Markets Treasury hold-to-collect-and-sell portfolio, see page 95. This portfolio of financial instruments is measured at fair value through other comprehensive income and is included in the non-trading VaR above. The stressed VaR quantitative disclosure provides the discrete potential capital impact from this portfolio.

Market risk

Overview

Market risk is the risk of adverse financial impact on trading activities arising from changes in market parameters such as interest rates, foreign exchange rates, asset prices, volatilities, correlations and credit spreads. Exposure to market risk is separated into two portfolios: trading portfolios and non-trading portfolios.

Market risk in the first half of 2023

There were no material changes to the policies and practices for the management of market risk in the first half of 2023.

A summary of our current policies and practices for the management of market risk is set out in 'Market risk management' on page 218 of the Annual Report and Accounts 2022.

During the first half of 2023, global financial markets continued to be driven by the inflation outlook, expectations of monetary policy tightening and recession risks, coupled with banking distress during March and negotiations over the US debt ceiling in May. Major central banks maintained their restrictive monetary policies throughout 1H23, while falling headline inflation in the US led the Federal Reserve Board ('FRB') to signal that it may be approaching the end of its tightening cycle. Short-term yields in key interest rate markets rose during 2Q23, after falling rapidly in the wake of the banking crisis in March. Sentiment in global equity markets was driven by resilient corporate earnings and changes in the monetary policy outlook. Main US indices reached their highest in over one year in 2Q23, with large gains in the technology sector and relatively subdued volatility. In foreign exchange markets, the US dollar fluctuated against most other major currencies, in response to FRB monetary policy and due to movements in the bond markets. Investor sentiment remained mostly resilient in credit markets. High-yield and investment-grade credit spreads tended to narrow as the banking sector stabilised and likelihood of a US debt downgrade receded.

We continued to manage market risk prudently in the first half of 2023. Sensitivity exposures and VaR remained mostly within appetite as the business pursued its core market-making activity in support of our customers. Market risk was managed using a complementary set of risk measures and limits, including stress testing and scenario analysis.

Trading portfolios

Value at risk of the trading portfolios

Trading VaR was predominantly generated by Markets and Securities Services. Trading VaR at 30 June 2023 increased compared with 31 December 2022. The VaR increase peaked in June 2023 and was mainly driven by:

-   interest rate risk exposures in currencies held across the Fixed Income and Foreign Exchange business lines to facilitate client-driven activity; and

-   the effects of relatively large short-term interest rate shocks for key currencies which are captured in the VaR scenario window.

The Group trading VaR for the half-year is shown in the table below.

Trading VaR, 99% 1 day
	Foreign exchange and commodity	Interest rate	Equity	Credit spread	Portfolio diversification1	Total
	$m	$m	$m	$m	$m	$m
Half-year to 30 Jun 2023	18.9	64.9	23.5	16.1	(55.6)	67.8
Average	16.7	51.9	17.5	11.1	(41.5)	55.7
Maximum	23.5	74.8	23.5	16.1		82.4
Minimum	10.6	33.9	14.9	7.7		42.2
Half-year to 30 Jun 2022	11.3	26.8	14.6	16.1	(32.5)	36.3
Average	14.2	26.3	14.5	19.1	(35.1)	39.1
Maximum	29.2	33.9	19.2	27.9		55.6
Minimum	5.7	20.3	11.5	12.0		29.1
Half-year to 31 Dec 2022	15.4	40.0	18.6	11.9	(36.4)	49.5
Average	13.0	32.7	17.7	14.6	(33.1)	45.0
Maximum	18.3	73.3	24.8	23.9		78.3
Minimum	9.1	20.2	13.9	9.1		34.0

1     When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

The table below shows trading VaR at a 99% confidence level compared with trading VaR at a 95% confidence level at 30 June 2023.

This comparison facilitates the benchmarking of the trading VaR, which can be stated at different confidence levels, with financial institution peers. The 95% VaR is unaudited.

Comparison of trading VaR, 99% 1 day vs trading VaR, 95% 1 day
	Trading VaR, 99% 1 day	Trading VaR, 95% 1 day
	$m	$m
Half-year to 30 Jun 2023	67.8	44.5
Average	55.7	34.5
Maximum	82.4	47.8
Minimum	42.2	26.2
Half-year to 30 Jun 2022	36.3	21.1
Average	39.1	22.1
Maximum	55.6	28.4
Minimum	29.1	17.5
Half-year to 31 Dec 2022	49.5	31.7
Average	45.0	27.1
Maximum	78.3	49.0
Minimum	34.0	20.1

Back-testing

We routinely validate the accuracy of our VaR models by back-testing the VaR metric against both actual and hypothetical profit and loss. Hypothetical profit and loss excludes non-modelled items such as fees, commissions and revenue related to intra-day transactions. The hypothetical profit and loss reflects the profit and loss that would be realised if positions were maintained and held constant from the end of one trading day to the end of the next. This measure of profit and loss does not align with how risk is dynamically hedged and is not, therefore, necessarily indicative of the actual performance of the business.

The number of hypothetical loss back-testing exceptions, together with a number of other indicators, is used to assess model performance and to consider whether enhanced internal monitoring or recalibration of the VaR model is required. We back-test our VaR at set levels of our Group entity hierarchy.

During the first half of 2023, the Group experienced no loss back-testing exceptions against actual and hypothetical profit and losses.

Insurance manufacturing operations risk

Overview

The key risks for our insurance manufacturing operations are market risks, in particular interest rate, growth asset and credit risks, as well as insurance underwriting and operational risks. Liquidity risk, while significant for other parts of the Group, is relatively minor for our insurance operations.

Insurance manufacturing operations risk in the first half of 2023

There have been no material changes to the policies and practices for the management of risks arising in our insurance operations described in the Annual Report and Accounts 2022.

A summary of our policies and practices regarding the risk management of insurance operations, our insurance model and the main contracts we manufacture is provided on page 233 of the Annual Report and Accounts 2022.

The risk profile of our insurance manufacturing operations are assessed in the Group's ICAAP based on their financial capacity to support the risks to which they are exposed.

Capital adequacy is assessed on both the Group's economic capital basis, and the relevant local insurance regulatory basis. The Group's economic capital basis is largely aligned to European Solvency II regulations, other than in Asia where it is based on the draft Hong Kong risk-based capital regulations. Risk appetite buffers are set to ensure that the operations are able to remain solvent on both bases, allowing for business-as-usual volatility and extreme but plausible stress events. In addition, the insurance manufacturing operations manage their market, liquidity, credit, underwriting and non-financial risk exposures to Board-approved risk appetite limits. Overall, at 30 June 2023, the majority of the capital and financial risk positions of our insurance operations were within risk appetite. We continue to monitor these risks closely in the current volatile economic climate.

The following table shows the composition of assets and liabilities by contract type.

Balance sheet of insurance manufacturing subsidiaries by type of contract
	Life direct participating and investment DPF contracts	Life other1	Other contracts2	Shareholder assets and liabilities	Total
	$m	$m	$m	$m	$m
Financial assets	109,737	4,245	5,734	7,204	126,920
-  financial assets designated and otherwise mandatorily measured at fair value through profit or loss	95,693	3,915	4,137	1,202	104,947
-  derivatives	272	6	-	7	285
-  financial investments - at amortised cost	1,296	87	1,200	4,338	6,921
-  financial assets at fair value through other comprehensive income	9,099	-	3	621	9,723
-  other financial assets	3,377	237	394	1,036	5,044
Insurance contract assets	5	174	-	-	179
Reinsurance contract assets	-	4,928	-	-	4,928
Other assets and investment properties	2,717	67	31	1,394	4,209
Total assets at 30 Jun 2023	112,459	9,414	5,765	8,598	136,236
Liabilities under investment contracts designated at fair value	-	-	5,131	-	5,131
Insurance contract liabilities	111,427	3,868	-	-	115,295
Reinsurance contract liabilities	-	780	-	-	780
Deferred tax	24	8	-	1	33
Other liabilities	-	-	-	7,336	7,336
Total liabilities	111,451	4,656	5,131	7,337	128,575
Total equity	-	-	-	7,661	7,661
Total liabilities and equity at 30 Jun 2023	111,451	4,656	5,131	14,998	136,236
Financial assets	102,539	4,398	6,543	7,109	120,589
-  financial assets designated and otherwise mandatorily measured at fair value through profit or loss	89,671	3,749	4,916	1,088	99,424
-  derivatives	432	9	21	15	477
-  financial investments - at amortised cost	981	165	1,221	4,660	7,027
-  financial assets at fair value through other comprehensive income	9,030	-	-	569	9,599
-  other financial assets	2,425	475	385	777	4,062
Insurance contract assets	4	130	-	-	134
Reinsurance contract assets	-	4,413	-	-	4,413
Other assets and investment properties	2,443	60	30	1,666	4,199
Total assets at 31 Dec 2022	104,986	9,001	6,573	8,775	129,335
Liabilities under investment contracts designated at fair value	-	-	5,374	-	5,374
Insurance contract liabilities	104,662	3,766	-	-	108,428
Reinsurance contract liabilities	-	748	-	-	748
Deferred tax	23	-	-	2	25
Other liabilities	-	-	-	7,524	7,524
Total liabilities	104,685	4,514	5,374	7,526	122,099
Total equity	-	-	-	7,236	7,236
Total liabilities and equity at 31 Dec 20223	104,685	4,514	5,374	14,762	129,335

1     'Life other' mainly includes protection insurance contracts as well as reinsurance contracts. The reinsurance contracts primarily provide diversification benefits over the life participating and investment discretionary participation feature ('DPF') contracts.

2     'Other contracts' includes investment contracts for which HSBC does not bear significant insurance risk.

3     From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated accordingly.

 

END