Half Year Report - 2022 Interim Report - Part 1

RNS Number : 5061U

HSBC Holdings PLC

01 August 2022

HSBC Holdings plc

Interim Report 2022

In fulfilment of its obligations under sections 4.2.2, 6.3.3(2) and 6.3.5(1) of the Disclosure Guidance and Transparency Rules, HSBC Holdings plc (the "Company") hereby releases the unedited full text of its 2022 Interim Report (the "Interim Report") for the half-year ended 30 June 2022.

The document is now available on the Company's website at:

https://www.hsbc.com/investors/results-and-announcements/all-reporting/group

HSBC Holdings plc

Interim Report 2022

Opening up a world of opportunity

Contents

Overview

2 Highlights

4 Group Chief Executive's review

8 Our strategy

11 How we do business

13 Financial overview

18 Global businesses

25 Risk overview

Interim management report

29 Financial summary

36 Global businesses

46 Geographical regions

56 Reconciliation of alternative performance measures

59 Risk

59 - Key developments in the first half of 2022

59 - Areas of special interest

63 - Credit risk

89 - Treasury risk

97 - Market risk

99 - Insurance manufacturing operations risk

102 Directors' responsibility statement

Interim condensed financial statements

103 Independent review report to HSBC Holdings plc

104 Interim condensed financial statements

110 Notes on the interim condensed financial statements

Additional information

131 Shareholder information

137 Forward-looking statements

138 Certain defined terms

139 Abbreviations

A reminder

The currency we report in is US dollars.

Adjusted measures

We supplement our IFRSs figures with non-IFRSs measures used by management internally that constitute alternative performance measures under European Securities and Markets Authority guidance and non-GAAP financial measures defined in and presented in accordance with US Securities and Exchange Commission rules and regulations. These measures are highlighted with the following symbol: <>

Further explanation may be found on page 16.

In this document we use the following abbreviations to refer to reporting periods:

1H22 First half of 2022 2Q22 Second quarter of 2022

2H21 Second half of 2021 1Q22 First quarter of 2022

1H21 First half of 2021 2Q21 Second quarter of 2021 1Q21 First quarter of 2021

Cover image: Opening up a world of opportunity

We connect people, ideas and capital across the world, opening up opportunities for our customers and the communities we serve.

Our global businesses

We serve customers through three global businesses. On pages 18 to 24 we provide an overview of our performance in the first half of 2022 for each of the global businesses, as well as our Corporate Centre.

Wealth and Personal Banking ('WPB')

We help millions of our customers look after their day-to-day finances and manage, protect and grow their wealth.

Commercial Banking ('CMB')

Our global reach and expertise help domestic and international businesses around the world unlock their potential.

Global Banking and Markets ('GBM')

We provide a comprehensive range of financial services and products to corporates, governments and institutions.

Opening up a world of opportunity

Our ambition is to be the preferred international financial partner for our clients.

Our purpose, ambition and values reflect our strategy and support our focus on execution.

Read more on our purpose and values on pages 4 and 15 of our Annual Report and Accounts 2021.

Key themes

Financial performance

Reported profit after tax in 1H22 increased compared with 1H21, and included a $1.8bn gain on the recognition of a deferred tax asset. Reported profit before tax decreased, primarily as a result of a net charge for expected credit losses and other credit impairment charges, compared with a net release in 1H21. In recognition of the impact of our growth and transformation programmes, as well as the improved global interest rate outlook, we have updated our returns target, and are now targeting a return on average tangible equity of at least 12% from 2023 onwards.

Read more on page 10.

Delivery against our financial targets

Return on average tangible equity (annualised) <>

9.9%

Revised target: ≥12% from 2023 onwards (updated from ≥10% in the medium term).

(1H21: 9.4%)

Adjusted operating expenses <>

$15.4bn

Target: 2022 adjusted operating expenses in line with 2021.

(1H21: $15.5bn)

Gross risk-weighted asset reduction

$114bn

since the start of the programme.

Target: >$110bn by the end of 2022.

Common equity tier 1 capital ratio

13.6%

Target: >14%, managing in the range of 14% to 14.5% in the medium term; and manage the range down further long term.

(31 December 2021: 15.8%)

Interim dividend per ordinary share for 1H22

$0.09

Further explanation of performance against Group financial targets may be found on page 13.

Performance in 1H22

Reported profit after tax

$9.2bn

(1H21: $8.4bn)

Basic earnings per share

$0.42

(1H21: $0.36)

Gender diversity

32.5%

Women in senior leadership roles.

Target: 35% by 2025.

(31 December 2021: 31.7%)

Sustainable finance and investment

$170.8bn

Cumulative total provided and facilitated since January 2020.

Ambition: $750bn to $1tn by 2030.

(31 December 2021: $126.7bn)

Read more on our financial overview on page 13.

Our data dictionary, which includes a definition of sustainable finance and investments, can be found at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

HSBC Holdings plc Interim Report 2022

Highlights

Performance in the first half of 2022 benefited from global interest rate rises on revenue and strong cost discipline. The impact of our growth and transformation programmes, as well as the improved global interest rate outlook, have given us the confidence to update our returns target.

Financial performance (1H22 vs 1H21)

• Reported profit after tax increased by $0.8bn to $9.2bn. This included a $1.8bn gain on the recognition of a deferred tax asset from historical losses, as a result of improved profit forecasts for the UK tax group, which has accelerated the expected utilisation of these losses. Reported profit before tax decreased by $1.7bn to $9.2bn, reflecting a net charge for expected credit losses and other credit impairment charges ('ECL'), compared with a net release in 1H21. Adjusted profit before tax fell by $0.9bn to $10.7bn.

• Reported revenue decreased marginally to $25.2bn, primarily due to foreign currency translation impacts and 1H22 losses on planned business disposals. Adjusted revenue increased by 4% to $25.7bn, driven by higher net interest income, reflecting interest rate rises and balance sheet growth, and strong growth in revenue from Global Foreign Exchange in Global Banking and Markets ('GBM'). This was partly offset by unfavourable market impacts in insurance manufacturing in Wealth and Personal Banking ('WPB').

• Net interest margin ('NIM') of 1.30% rose by 9 basis points ('bps').

• Reported ECL were a net charge of $1.1bn, reflecting stage 3 charges of $0.8bn, as well as additional allowances to reflect heightened economic uncertainty and inflation, in part offset by the release of most of our remaining Covid-19 reserves. This compared with a $0.7bn net release in 1H21.

• Reported operating expenses decreased by 4%, primarily due to foreign currency translation impacts. The reduction also reflected the impact of our cost-saving initiatives and a lower performance-related pay accrual, which partly offset increased investment and inflationary impacts. Adjusted operating expenses decreased by 1%.

• Reported customer lending decreased by $17bn since 31 December 2021 due to foreign currency translation impacts. Adjusted customer lending increased by $34bn, reflecting growth in Commercial Banking ('CMB') and GBM, including trade lending, and growth in WPB from mortgages and unsecured lending.

• Return on average tangible equity ('RoTE') (annualised) of 9.9% increased by 0.5 percentage points compared with 1H21, including a 2.3 percentage point annualised impact of the deferred tax asset gain.

• Common equity tier 1 ('CET1') ratio of 13.6% decreased by 2.2 percentage points from 31 December 2021. This reflected a reduction in CET1 capital of $16.8bn, which included a $4.8bn valuation loss in equity from financial instruments as yield curves steepened, and a $13.4bn increase in risk-weighted assets ('RWAs') primarily from 1Q22 regulatory changes. The reduction also included the share buy-back of up to $1bn announced at our full-year 2021 results.

• The Board has approved an interim dividend for 1H22 of $0.09 per ordinary share, to be paid in cash.

Financial performance (2Q22 vs 2Q21)

• Reported profit after tax increased by $1.9bn to $5.8bn, which included a $1.8bn deferred tax gain. Reported profit before tax was stable at $5.0bn. Net ECL charges of $0.4bn compared with 2Q21 net ECL releases of $0.3bn. This movement was broadly offset by reported revenue growth, mainly due to interest rate rises, despite an adverse movement in market impacts in insurance manufacturing, foreign currency translation impacts and losses on planned business disposals. In addition, reported operating expenses were lower due to foreign currency translation impacts, our cost-saving initiatives and strong cost discipline mitigating increased investment and inflation.

Outlook

• The revenue outlook remains positive. Based on the current market consensus for global central bank rates and our continued mid-single-digit percentage lending growth expectations for 2022, we would expect net interest income of at least $31bn for 2022 and at least $37bn for 2023 (based on average June rates of foreign exchange on an IFRS 4 basis¹).

• We continue to expect our ECL charges to normalise towards 30bps of average loans in 2022, recognising the possible risk of further deterioration in the consensus economic outlook.

• We remain confident in our ability to deliver 2022 adjusted operating expenses in line with 2021, despite inflationary pressures. We now aim to deliver 2023 adjusted cost growth of around 2%, compared with 2022 on an IFRS 4 basis¹, and intend to maintain strict cost discipline thereafter.

• With profit generation and continued RWA actions, we aim to manage back to within our 14% to 14.5% CET1 target range during the first half of 2023. While further share buy-backs remain unlikely in 2022, for future years we expect to return to shareholders excess capital over and above what is required for executing the strategy. The forecast loss on the disposal of our French retail operations is expected to impact our CET1 ratio by approximately 30bps in the second half of 2022.

• The impact of our growth and transformation programmes over the last two years has given us the confidence to update our returns guidance. Subject to the current path implied by the market for global policy rates, we are now targeting a RoTE of at least 12% from 2023 onwards, noting continued macroeconomic uncertainty.

• Given the current returns trajectory, we expect a dividend payout ratio of around 50% for 2023 and 2024. We also intend to revert to paying quarterly dividends in 2023, although we expect the quarterly dividend for the first three quarters to initially be reinstated at a lower level than the historical quarterly dividend of $0.10 per share paid up to the end of 2019.

1 Following the implementation of IFRS 17 on 1 January 2023, directly attributable costs will be incorporated in the contractual service margin and, as recognised, will be presented as a deduction to reported revenue. This will result in a reduction in reported operating expenses.

2	HSBC Holdings plc Interim Report 2022

Key financial metrics

	Half-year to
	30 Jun	30 Jun	31 Dec
	2022	2021	2021
Reported results
Reported revenue ($m)	25,236	25,551	24,001
Reported profit before tax ($m)	9,176	10,839	8,067
Reported profit after tax ($m)	9,215	8,422	6,271
Profit attributable to the ordinary shareholders of the parent company ($m)	8,289	7,276	5,331
Cost efficiency ratio (%)	65.1	66.9	73.1
Net interest margin (%)¹	1.30	1.21	1.20
Basic earnings per share ($)	0.42	0.36	0.26
Diluted earnings per share ($)	0.41	0.36	0.26
Alternative performance measures
Adjusted revenue ($m)	25,690	24,734	23,577
Adjusted profit before tax ($m)	10,673	11,538	9,681
Adjusted cost efficiency ratio (%)	59.9	62.7	65.5
Expected credit losses and other credit impairment charges ('ECL') (annualised) as % of average gross loans and advances to customers (%)	0.21	(0.14)	(0.03)
Return on average ordinary shareholders' equity (annualised) (%)¹	9.7	8.4	7.1 %
Return on average tangible equity (annualised) (%)^1,2	9.9	9.4	8.3 %

	At
	30 Jun	30 Jun	31 Dec
	2022	2021	2021
Balance sheet
Total assets ($m)	2,985,420	2,976,005	2,957,939
Net loans and advances to customers ($m)	1,028,356	1,059,511	1,045,814
Customer accounts ($m)	1,651,301	1,669,091	1,710,574
Average interest-earning assets ($m)	2,233,321	2,188,991	2,209,513
Loans and advances to customers as % of customer accounts (%)	62.3	63.5	61.1
Total shareholders' equity ($m)	188,382	198,218	198,250
Tangible ordinary shareholders' equity ($m)	148,308	157,985	158,193
Net asset value per ordinary share at period end ($)	8.41	8.69	8.76
Tangible net asset value per ordinary share at period end ($)	7.48	7.81	7.88
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)^3,4	13.6	15.6	15.8
Risk-weighted assets ($m)^3,4	851,743	862,292	838,263
Total capital ratio (%)^3,4	18.6	21.0	21.2
Leverage ratio (%)^3,4	5.5	5.3	5.2
High-quality liquid assets (liquidity value) ($bn)⁴	656.6	659.3	717.0
Liquidity coverage ratio (%)⁴	134	134	138
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions)	19,819	20,223	20,073
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)	19,949	20,315	20,189
Average basic number of $0.50 ordinary shares outstanding (millions)	19,954	20,211	20,183
Dividend per ordinary share (in respect of the period) ($)	0.09	0.07	0.18

For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 37. Definitions and calculation of other alternative performance measures are included in our 'Reconciliation of alternative performance measures' on page 56.

1 For these metrics, half-year to 31 December 2021 is calculated on a full-year basis and not a 2H21 basis.

2 Profit attributable to ordinary shareholders, excluding impairment of goodwill and other intangible assets and changes in present value of in-force insurance contracts ('PVIF') (net of tax), divided by average ordinary shareholders' equity excluding goodwill, PVIF and other intangible assets (net of deferred tax).

3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. These include the regulatory transitional arrangements for IFRS 9 'Financial Instruments', which are explained further on page 94. The leverage ratio is calculated using the end point definition of capital and the IFRS 9 regulatory transitional arrangements, in line with the UK leverage rules that were implemented on 1 January 2022, and excludes central bank claims. Comparatives for 2021 are reported based on the disclosure rules in force at that time, and include claims on central banks. References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation and/or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and subsequently amended under UK law.

4 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.

HSBC Holdings plc Interim Report 2022

Group Chief Executive's review

By delivering our growth and transformation plans at pace, HSBC has become a stronger, more international business capable of achieving our best returns in a decade.

We are now two and a half years into our transformation programme to make HSBC fit for the future. We still have more work to do in the second half of this year - but we are now much better positioned to meet the needs of our international customers and to deliver higher returns for our shareholders.

The key to delivering our ambitions, now and in the future, is to grow and transform HSBC at the same time. That was the focus of the transformation programme we announced in February 2020, and of the updated strategy we launched in February 2021. The progress we have made in both regards gives us a strong starting point as we enter the current interest rate cycle.

Our transformation agenda has been based around three things: reshaping our portfolio, increasing our capital efficiency and tightly managing our costs. In 2021, we accelerated this agenda in response to Covid-19, under four strategic pillars: focus on our strengths, digitise at scale, energise for growth, and lead the transition to net zero.

In reshaping our portfolio, we have exited - or are exiting - non-strategic businesses in the West and reallocated capital towards areas of growth in Asia and the Middle East. In the first half of 2022, we completed our acquisition of AXA Singapore, increased our stake in HSBC Qianhai Securities to 90%, took full ownership of our HSBC Life China insurance business, and agreed to sell our businesses in Greece and Russia, subject to regulatory approvals.

In terms of capital efficiency, our risk-weighted asset reduction programme had reached $104bn by the end of 2021, against a target of $110bn by the end of 2022. We have now reached a cumulative total of $114bn of risk-weighted asset savings, and the acceleration of restructuring across our US and Europe businesses means we are on track to reach at least $120bn of savings by the end of this year.

We continue to invest in areas of strength. Our investment to boost our Asia wealth product and platform capabilities helped us to attract strong levels of net new invested assets, and to grow the value of new business in our insurance franchise in Asia by 41% on last year's first-half. We achieved both of these despite the temporary closure of parts of our branch network due to Covid-19 restrictions in Hong Kong.

Finally, we have continued to manage our cost base with discipline. Our sustained investment to digitise HSBC at scale has helped make us a more agile and efficient organisation. Our hybrid working model has enabled us to reduce our office real estate footprint by around a third since the start of 2020. At the same time, rising customer demand for digital products and services has enabled us to keep reducing and adapting our branch network in response to changing customer behaviour.

Our cost reduction programmes remain on track. We have more to do before December - particularly to further simplify the organisation - but I remain committed to achieving stable adjusted costs in 2022 compared with last year, despite rising inflation.

4	HSBC Holdings plc Interim Report 2022

"The progress we have made in growing and transforming the business gives us a strong starting point as we enter the current interest rate cycle."

International

As a result of this work, HSBC is now a more international business, focused on serving international customers alongside our strong domestic franchises in Hong Kong and the UK. Serving customers across borders is what we do best. It is how we can best help them to grow, and, we believe, the fastest way to accelerate returns for our shareholders.

HSBC has been internationally focused since it was founded 157 years ago to support trade between East and West. When we refreshed our purpose 18 months ago, we spoke to tens of thousands of our customers, colleagues and other stakeholders as we considered who we are and what we do. Our refreshed purpose - 'opening up a world of opportunity' - underlined that our internationalism remains the most defining characteristic of our identity.

Our strength as a well connected, global institution is the main reason our wholesale clients choose to bank with us and we are determined to capitalise on the advantages our network gives us. As part of this, we are exiting domestic wholesale client relationships where returns are sub-standard in order to focus on meeting the needs of international customers. We have repositioned our US and Europe businesses in the same vein, completing the sale of our US domestic mass market retail business in the first half of the year, and remaining on track to complete the sale of our French retail business in 2023.

This strategy is serving our customers and investors well. Even as trade flows have changed and supply chains have shifted post-pandemic, we have maintained our leadership in global trade because our global network means we can go wherever trade goes. We built on this further in the first-half, growing trade balances by $5bn or 6% in a challenging global environment. We were also named 'Best Bank for Trade Finance' by Euromoney in July.

In a low interest-rate environment, our international network was also a key factor in the good returns generated by our other leading franchises. More than three quarters of our wholesale client revenue is connected to our international network, and just under half of our wholesale client business is cross-border. Our ability to connect clients in the West with high-returning opportunities in the East remains a key differentiator.

In Commercial Banking, adjusted revenue grew by 14% compared with last year's first-half, with international business a strong contributor. In particular, we saw adjusted revenue growth of 20% in Global Trade and Receivables Finance, and of 42% in Global Liquidity and Cash Management.

In Global Banking and Markets, adjusted revenue was up 4% on the same period last year, due in part to a good performance in transaction banking. In addition, the volume of client business booked in Asia and the Middle East from clients managed in Europe and the Americas grew by 8% on last year's first-half, underlining the importance of our ability to connect global clients and investors to those regions.

In Wealth and Personal Banking, we grew the number of customers classed as international by 5%, compared with last year's first-half. These include customers we bank in more than one market, and customers who come from a country or territory other than the market in which they now bank. According to our analysis, the average international customer generates around double the revenue of the average domestic customer. This is both our fastest growing customer segment, and our most commercially attractive.

HSBC Holdings plc Interim Report 2022

Financial performance

Our first-half performance reflected much of the progress we have made since 2020, with good organic growth across the business and tight cost control. In addition, increased net interest income reflected rising global interest rates, with further policy rate rises anticipated over the coming months.

Overall, the Group delivered $9.2bn of reported profit before tax and $10.7bn of adjusted profit before tax in the first half of the year. Although this was lower than in the first half of 2021, it reflected a more normalised level of expected credit losses compared with the Covid-19 releases made last year, as well as the macroeconomic impact of the Russia-Ukraine war.

All our regions were profitable in the first-half. This included a strong performance from HSBC UK, which delivered adjusted profits of $2.5bn, up 15% on the first half of last year. Our Asia business delivered adjusted profits of $6.3bn, despite the impact of Covid-19 in some of our biggest markets.

Adjusted revenue was up 4%, including growth of 15% in net interest income compared with last year's first-half. Market impacts meant wealth revenue was lower compared with the same period last year, although our insurance business performed well. In Commercial Banking, adjusted trade revenue was up 20% on the prior year. Lending balances were up in all businesses in the first-half, underlining that conversion of our business pipelines remains strong.

Adjusted operating expenses fell by 1%, mainly as a result of our cost-saving initiatives and a lower performance-related pay accrual. We achieved this in spite of growing inflationary pressures and rising investments in technology and our Asia Wealth business.

Our CET1 ratio at the end of the first-half was 13.6%, down from 15.8% at the end of 2021. This reflected losses on financial instruments held as hedges to our exposure to interest rate movements, and an increase in RWAs due to regulatory changes and foreign exchange movements. We expect to be back within our 14% to 14.5% CET1 target range in the first half of 2023.

We have announced an interim dividend of $0.09 per share, up $0.02 per share on the first half of 2021. We have also now completed both the $2bn buy-back programme we announced in 2021, and the further $1bn buy-back we announced at our annual results in February.

"Serving customers across borders is what we do best. It is how we can best help them to grow, and, we believe, the fastest way to accelerate returns for our shareholders."

Outlook

The revenue outlook has improved further since our full-year 2021 results, despite the uncertain macroeconomic environment.

In February, based on the implied market consensus policy rates at the time, we expected to deliver a return on tangible equity of at least 10% for 2023. We expect to make further progress with our growth and transformation plans in the second half of 2022, and believe we can restrict cost growth to around 2% in 2023, despite inflationary pressures. Subject to the path currently being implied by the market for policy rates, we are now confident of achieving a return on tangible equity of at least 12% from 2023 onwards.

As a result of this higher returns trajectory, we are also able to provide more specific guidance around dividends. We now expect to deliver an improved payout ratio of around 50% for 2023 and 2024, subject to achieving our performance targets. We also intend to revert to paying quarterly dividends from the start of 2023. We remain committed to enabling our shareholders to benefit from the growing returns that our strategy is delivering.

6	HSBC Holdings plc Interim Report 2022

Transition to net zero

The transition to net zero is a core part of our strategy, both now and for the long term. Given our scale and footprint, we know we have a major role to play in enabling the transition to a net zero global economy. I am unequivocal about my own personal commitment to this agenda, and that commitment is shared by the Board and the senior management team. The urgent need to transition the global economy to net zero is going to change the industrial landscape completely. The overwhelming majority of our clients understand this, and are actively planning and undertaking their own transitions. It stands to reason that financing the new business models and climate technologies they need presents a huge commercial opportunity for HSBC.

I am pleased that we have continued to make good progress towards our ambition of providing and facilitating between $750bn and $1tn of sustainable finance and investment by 2030. By the end of June, our cumulative total for sustainable finance and investment since 2019 was more than $170.8bn. Earlier this year, we published interim targets for on-balance sheet financed emissions in the oil and gas, and power and utilities sectors. We also committed to publish our first bank-wide climate transition plan in 2023, to phase down fossil fuel financing in line with science-based targets, and to review and update our financing and investment policies critical to net zero. These concrete actions can have a significant impact in reducing global emissions and will help ensure that HSBC remains a global climate leader.

Our people

Everything we have achieved over the last six months - and everything we want to achieve over the next six months and beyond - rests on the hard work, commitment and tireless efforts of my colleagues around the world.

I am especially grateful to my colleagues for managing considerable uncertainty and disruption in the first half of the year, particularly those in Hong Kong and mainland China, who have managed the impact of Covid-19 restrictions on our customers and communities; in Sri Lanka, who have continued to deliver for our customers during the current economic and political crisis; and in Poland and eastern Europe, who have been volunteering to help those directly impacted by the Russia-Ukraine war.

I am grateful too for the support that my colleagues have offered to customers impacted by the ongoing cost of living crisis gripping many of the world's major economies. These are testing times for many of those who bank with us and we are committed to helping support them through this difficult period.

My colleagues represent the very best of HSBC, and I am proud of all they have done - and are doing - to support our customers, communities and each other.

Noel Quinn

Group Chief Executive

1 August 2022

HSBC Holdings plc Interim Report 2022

Our strategy

We are actively implementing our strategy across the four pillars aligned to our purpose, values and ambition announced in February 2021.

Progress on our 2021 commitments

Since the announcement of our transformation programme in February 2020 and the launch of our refreshed strategy in February 2021, we have made good progress in both growth and transformation initiatives across our four strategic pillars:

• focus on our areas of strength;

• digitise at scale to adapt our operating model for the future;

• energise our organisation for growth; and

• support the transition to a net zero global economy.

In the first half of 2022, we saw strong underlying growth across our businesses. In Wealth and Personal Banking, our net new invested assets grew by $39bn despite adverse market conditions, reflecting our focus on wealth over the past years. The insurance value of new business in Asia increased by 41%, and lending balances continued to grow. In Commercial Banking, we had strong growth in both net interest income and fee income. Our Markets and Securities Services business also had a strong 1H22 despite market volatility.

We also made good progress on our inorganic activities. We completed the acquisition of AXA Singapore and are on track to complete the acquisition of L&T Investment Management in India. We increased our equity shareholding in our Chinese securities joint venture, HSBC Qianhai Securities, bringing our stake from 51% to 90%, and also acquired the remaining 50% stake in HSBC Life Insurance Company Limited in China. In the UK, we continued our strong growth momentum in mortgages, with market share growing to 7.6% in 1H22, from 7.4% in 1H21, according to calculations based on Bank of England market data.

In addition to growth, we continue to deliver on various transformation initiatives. We are on track to keep our adjusted costs in 2022 stable compared with 2021, while continuing to dedicate a higher portion of expenditure into technology to drive operating productivity and better customer outcomes.

To further support our areas of growth, we are continuing to reposition our portfolio through the exits of the domestic mass market retail business in the US and the retail banking business in France. We are also planning to exit Greece and Russia, subject to regulatory approval. The progress of our transformation programme positions us well as we enter into a cycle of higher interest rates. We have a higher deposit balance than a few years ago, lower unsecured lending credit risk as a percentage of our retail loan book and higher operating leverage through our cost programme. We are well positioned to execute our growth and transformation programme from this strong basis.

Shifting capital to areas with the highest returns and growth

We aim to accelerate the shift of capital and resources to areas that have demonstrated the highest returns and where we are strongest, including to Asia and our higher-returning WPB business. Fee-income growth continues to be our focus, although its share relative to total adjusted revenue was impacted by recent interest rate rises, which led to higher net interest income in 1H22. We aim to pivot to a longer-term revenue mix of approximately 35% fees and insurance income, given our investments across the three global businesses on fee propositions.

Capital allocation and revenue concentration

Asia

(as a % of Group tangible equity)¹

Wealth and Personal Banking

(as a % of Group tangible equity)²

Adjusted fees and insurance revenue

(as a % of total adjusted revenue)³

1 Based on tangible equity of the Group's major legal entities excluding associates, holding companies and consolidation adjustments.

2 WPB tangible equity as a share of tangible equity allocated to the global businesses (excluding Corporate Centre). Excludes holding companies and consolidation adjustments.

3 IFRS 17 is effective from 1 January 2023 and could have a significant adverse impact on the recognition of profits in our insurance business. For further details on the impact of IFRS 17 on the results of our insurance operations, including preliminary management estimates, see page 29.

4 Medium term is defined as 3 to 4 years from 1 January 2020; long term is defined as 5 to 6 years from 1 January 2020.

8	HSBC Holdings plc Interim Report 2022

Our strategy

Our strategy centres on four key areas: focus on our strengths, digitise at scale to adapt our operating model for the future, energise our organisation for growth, and support the transition to a net zero global economy.

Focus on our strengths
In our global businesses

In each of our global businesses, we focus on delivering growth in areas where we are strongest and have opportunities to grow.

Wealth and Personal Banking

In WPB, we have continued to make progress in executing our wealth, asset management and insurance strategy, notably in Asia. WPB adjusted revenue in 1H22 was $10.9bn, down 0.5% compared with 1H21, but with good growth in the UK, Mexico and Asia excluding Hong Kong. Personal Banking performed strongly with 13% growth during the same period. Despite adverse market conditions, in 1H22 we grew our net new invested assets by $39bn, with $22bn coming from Asia. Our Asia insurance value of new business reached $660m, up 41% compared with 1H21. During the same period, our lending balance grew 4% to $475bn. We have made progress on many international propositions. Global Money Account, our multi-currency account, is live in three markets and Global Money Transfer is launched in five markets with expansion planned for later this year. We launched the first corridor - India to Singapore - for our international credit portability service, which allows customers to use their credit history in their home country to gain customer credit in a foreign country. In the US, Canada, Hong Kong (overseas Hong Kong ID holders only) and for HSBC Expat Banking accounts, we enabled a digital capability for customers to open their foreign bank accounts from their home country online.

Commercial Banking

We saw strong performance in CMB across all regions with adjusted revenue reaching $7.2bn, a 14% increase compared with 1H21, driven by both transaction banking and lending. Growth in Global Liquidity and Cash Management and Global Trade and Receivables Finance especially contributed to fee income growth, a key area of focus for us, with overall fee income increasing by 12% to $1.9bn in 1H22. We continue to invest in global platforms and improving SME propositions. We are rolling out Global Wallet, a digital wallet that allows Business Banking customers to send 11 currencies and receive six currencies without opening local bank accounts, to more markets later in 2022. To support our plan to accelerate international client acquisition, we launched our Banking as a Service platform with Oracle Netsuite in the US, and are exploring expansion to additional markets. We also piloted a trade finance platform that provides financing programmes to manufacturers, retailers and online marketplaces.

Global Banking and Markets

GBM adjusted revenue increased 4% compared with 1H21, reaching $7.8bn. Adjusted collaboration revenue with our other global businesses remains a key opportunity for us, with $1.8bn in 1H22 compared with $1.7bn in 1H21. GBM continues to drive international connectivity across regions, with our clients in Europe and the Americas facilitating approximately $1.1bn of client business into Asia and the Middle East in 1H22, an increase of approximately 8% compared with 1H21.¹ In Asia, we are ramping up our client coverage, through strengthening our Singapore-based expertise to support regional growth, and rolling out a coverage model that will serve our mainland China clients consistently across the relevant legal entities, including activities served out of Hong Kong. We are creating a platform to issue digital bonds as our first tokenised solution in the market. We are also engaging with central banks on central bank digital currency experiments in preparation for future launches.

1 Client business differs from reported revenue as it relates to certain client-specific income, and excludes certain products (including Principal Investments, CMB and GBM Other and Asset Management), Group allocations, recoveries and other non-client related and portfolio level revenue. It also excludes Hang Seng. CMB client business excludes Business Banking customers. GBM client business includes an estimation of client-specific day one trade-specific revenue from Markets and Securities Services products, which excludes ongoing mark-to-market revenue and portfolio level revenue such as hedging. Cross-border client business represents the income earned from a client's entity domiciled in a different geography than where the client group's global relationship is managed. 'Booking location' represents the geography of the client's entity or transaction booking location where this is different from where the client group's global relationship is managed. Analysis is based on reported FX.

HSBC Holdings plc Interim Report 2022

Digitise at scale

Investing in technology

We continue to invest in our technology and operational capabilities to drive operating productivity and to offer better client experience across businesses and geographies. In 1H22, approximately $3.1bn, or 20%, of our overall adjusted operating expenses were dedicated to technology, up from approximately $2.9bn in 1H21.

Our investments are enhancing our platforms and our customers' digital experiences. The improving digital engagement with clients across various channels shows the progress we have made so far. At the end of 1H22, 46% of our retail customers active on our mobile services had logged onto a HSBC mobile app at least once in the last 30 days, compared with 41% at the end of 1H21. Our wholesale clients executed 6.3 million payments on HSBCnet's mobile banking app, a 61% increase compared with 1H21.

To improve our operational efficiency, we continue to increase the usage of Cloud in our back-office functions. Our Cloud adoption rate, which is the percentage of our technology services on the private or public Cloud, increased from approximately 25% at the end of 1H21 to 31% at the end of 1H22. During the same period, 27% of our total technology workforce in the global businesses and functions were aligned to at least one agile team per agile blueprint, more than doubling from 13%. Since 2019, we have reduced our global corporate real estate by 30%, and decreased our physical branch footprint globally from 3,222 branches to 2,665. Our operations headcount in the Digital Business Services function also reduced during the same period from approximately 31,400 to 28,400 people.

As we increase our efficiency, especially through utilising technology, we continue to focus on keeping our costs stable and offsetting pressures that arise from higher inflation.

Technology spend

% of total adjusted operating expenses

Energise for growth

Empowering and energising our employees is crucial for building a more effective workforce. We have made progress across all the parameters set out in our strategy.

We continue to advocate diversity and inclusion, especially in senior leadership roles, which are those classified as band 3 and above in our global career band structure. We have been steadily increasing the percentage of female leaders, reaching 32.5% at the end of 1H22, compared with 31.1% at the end of 1H21.

To open up a world of opportunity for our colleagues and to help them develop future-ready skills, in 2021 we launched Talent Marketplace, an online platform that uses our global network and allows colleagues to work on projects around the world based on their skills and aspirations. We aim to roll this out to all employees by 2023. We also continued to provide learning opportunities for our colleagues, especially in data, digital and sustainability. In 1H22, the total learning hours spent on these future skills increased to approximately 175,000 hours from 22,400 hours in 1H21. To build a simpler, leaner organisation, we created Group-wide design principles to shape our future organisational model and structure.

Transition to net zero

As part of our ambition to support our customers through transition to net zero, we aim to provide and facilitate $750bn to $1tn of sustainable finance and investments by 2030. In 1H22, we provided and facilitated $44.1bn of cumulative sustainable finance and investments, bringing our cumulative amount since 1 January 2020 to $170.8bn. We also continued to demonstrate progress towards our net zero target. In March 2022, we outlined three steps to turn our net zero ambition for our portfolio of clients into business transformation across the Group. This includes publishing a bank-wide climate transition plan in 2023, phasing down our fossil fuel finance with a science-aligned method, and reviewing our wider financing and investment policies that are critical to achieving net zero by 2050. We continue to unlock new climate solutions, focusing on supporting innovation in critical areas such as green technologies. To support this, in January 2022 we announced our investment of $100m as an anchor partner in Breakthrough Energy Catalyst, a programme that uses private-public capital to accelerate the development of clean technologies.

10	HSBC Holdings plc Interim Report 2022

How we do business

We conduct our business intent on opening up opportunities to ensure the sustained success of our customers, people and other stakeholders.

Our approach

Our purpose, 'Opening up a world of opportunity', explains why we exist and guides us in what we do every day. It is a long-term, optimistic and confident statement of the opportunity and growth we see for our customers and ourselves in the future.

We are continuing to embed our purpose and values in the organisation. We regularly ask our people to reflect on how we are opening up a world of opportunity for our customers, investors, colleagues and communities. In the first half of 2022, we invited all our colleagues globally to join a live online conversation, to share ideas on how to improve customer and colleague experience, and delivering on our purpose. These ideas will be analysed and shared with leaders to inspire action.

We were also guided by our purpose when we sought to help our customers impacted by the Russia-Ukraine war, the Covid-19 pandemic, supply chain disruptions and the rising cost of living (see next page).

Our conduct

Our purpose-led conduct approach guides us to do the right thing and focus on the impact we have for our customers and the financial markets in which we operate. Together with more formal policies and the tools we have to do our jobs, our conduct approach provides a clear path to achieving our purpose and delivering our strategy. For further details, see www.hsbc.com/who-we-are/esg-and-responsible-business/our-conduct.

Our colleagues

We have continued to help our colleagues navigate the impacts of the Covid-19 pandemic. Supporting the mental and physical well-being of our colleagues has remained a priority. We have provided new tools, services, and training, especially in countries and territories where Covid-19-related restrictions on mobility persisted throughout the first half of this year.

Developing the skills of colleagues is critical to energising our organisation and developing career resilience. In 1H22, our colleagues completed approximately 175,000 hours on courses and development activity related to our key future skills: sustainability, digital and data.

We have continued to develop the diversity of our senior leadership and we remain on track to achieve our ambition of 35% female leaders by 2025. Providing transparency over the makeup of our organisation helps us to improve how we reflect the communities we serve. In 2020, we committed to double the number of Black senior leaders by 2025. In the UK and US, we have set country-specific goals that are aligned to country demographics. In the Asia-Pacific and MENA regions, we are encouraging colleagues to voluntarily share their ethnicity data to allow us to continue developing market-specific goals.

Our climate transition

Climate change is one of the most urgent problems facing our world. Finance has a critical role to play and, given our global presence, we believe we are well positioned to support our customers in the transition to a net zero global economy.

We are committed to a science-aligned phase-down of fossil fuel finance to limit the rise in global temperatures to 1.5°C, compared with pre-industrial levels. We have set on-balance sheet financed emissions reduction targets for two emissions-intensive sectors, where we believe engagement and climate action have the greatest potential to effect change: the oil and gas, and power and utilities sectors.

In March 2022, we announced the steps we will take to transform our business to achieve our net zero ambition of becoming net zero in our operations and supply chain by 2030, and align our financed emissions to net zero by 2050.

Our ambition is underpinned by our relationships with customers and our collective engagement. We will work with our major energy producer clients to help develop credible, science-based transition plans. We will use these plans as a basis for further engagement and decision making, including how we drive decarbonisation within our portfolios.

We are reviewing and updating our financing and investment policies critical to achieving our net zero ambition. These include policies on energy and thermal coal, as well as on deforestation to reflect emerging science, international guidance and industry practice.

We plan to publish initial financed emissions baselines and targets for the sectors: coal mining, aluminium, cement, iron and steel, and transport (including automotive, aviation and shipping), as part of our annual disclosure for the year ended 31 December 2022. We have committed to publish our own climate transition plan in 2023. This plan will bring together our climate strategy, science-based targets, and how we plan to embed this into our processes, policies and governance.

Delivering for our stakeholders

Having a clear purpose and strong values has never been more important. As the world changed over the past two years, we adapted to new ways of working.

We have endeavoured to provide support to our customers, colleagues and communities impacted by the Russia-Ukraine war. We also recognise that the world is at different stages of the Covid-19 pandemic, and have sought to help customers amid supply chain disruptions and the rising cost of living, while providing support to our colleagues in maintaining their well-being. Listening to the views of our colleagues is also fundamental to how we work at HSBC.

In the following table, we set out how we have supported our stakeholders - our customers, employees, investors, communities, regulators and governments, and suppliers - during the first half of 2022.

HSBC Holdings plc Interim Report 2022

Our stakeholders	How we deliver
Customers	- We have opened over 5,000 bank accounts for Ukrainian refugees in the UK to support them with accessing required financial services. This follows a scheme launched last year to allow Afghan settlers to open bank accounts. HSBC UK fully supports the Homes for Ukraine scheme and is committed to making it as simple as possible for mortgage and home insurance customers to take part. - We provided more flexible payment terms and reduced the time for both supplier credit approvals and access to working capital financing to help customers manage recent supply chain disruptions. - In the UK, we are preparing to support customers amid the rising cost of living pressures from higher inflation. Initiatives include proactively contacting customers who might be at risk of financial difficulty, and creating a new cost of living 'hub' on the public website, with articles, tools and links to third-party support. - We continued to support businesses in their sustainability transition with the launch of a £500m Green SME Fund in the UK and a $5bn Sustainability Fund for the Greater Bay Area, as well as a $1bn Female Entrepreneur Fund across selected markets.
Customers
Employees	- In April 2022, 18,000 colleagues joined our second 'Global Jam', where for over three days colleagues from every region held a multi-language conversation on topics such as our purpose and values, life at HSBC and customer experience. - In some of our Asian markets, which continued to face Covid-19-related restrictions, we supported colleagues with an enhanced well-being offering to support mental and physical needs. Care packages - including food supplies - were distributed to colleagues where local supply chains were strained. - Following positive feedback from colleagues, we continued to adopt hybrid working practices. We are continuing to review and implement more modern flexible working arrangements across all our operating markets to help more colleagues improve their work-life balance, which is linked to improved mental health.
Investors	- We value the ongoing engagement we have with our shareholders and have begun to reflect the Group's approach to new ways of working in conducting our investor programme, offering in-person, virtual and hybrid meetings and events. - We were pleased to be able to offer in-person attendance as well as a video webcast option for our AGM in April and continue to engage constructively with institutional shareholders and ShareAction in developing our climate-related commitments. In April, we also paid the second interim dividend for 2021 of $0.18 per share, and continue to target sustainable dividends with a target payout ratio range of 40% to 55% of reported EPS, while retaining the flexibility to adjust for non-cash significant items. - We look forward to engaging with our Hong Kong retail shareholders at an Informal Shareholder Meeting to be held on Tuesday 2 August 2022.
Communities	- Our Hongkong Bank Foundation donated $12.8m towards Covid-19 relief for vulnerable communities in Hong Kong. - We made donations to UNICEF and the International Committee of the Red Cross to support their emergency response programmes helping those affected by the conflict in Ukraine.
Communities
Regulators and governments	- We proactively engage with regulators and governments to facilitate strong relationships via virtual and in-person meetings, and responses to consultations individually and jointly via the industry bodies.
Regulators and governments
Suppliers	- We invited 500 suppliers to participate in the CDP (previously Carbon Disclosure Project) supply chain programme, which helps us to better understand their carbon emissions and zero carbon ambitions. This initiative supports our ambition to be net zero in our operations and supply chain by 2030.

12	HSBC Holdings plc Interim Report 2022

Financial overview

In assessing the Group's financial performance, management uses a range of financial measures that focus on the delivery of sustainable returns for our shareholders and maintaining our financial strength.

Executive summary

Financial performance in the first half of 2022 included a net ECL charge, compared with a net release in 1H21. Revenue benefited from the impact of interest rate rises, primarily in response to higher inflation, and balance sheet growth in all of our global businesses. Our Markets and Securities Services ('MSS') business benefited from strong client activity, although we were impacted by unfavourable movements in market impacts in life insurance manufacturing due to weaker performances in equity markets. Operating expenses continued to reflect strong cost discipline.

Reported profit before tax of $9.2bn decreased by $1.7bn, compared with 1H21, and our annualised return on average tangible equity ('RoTE') was 9.9%, which included a 2.3 percentage point annualised impact of a $1.8bn gain following the recognition of a deferred tax asset. This compared with a RoTE of 9.4% in 1H21. In 1H22, all of our regions were profitable, while of our three global businesses, CMB had a particularly strong performance.

The Group CET1 ratio of 13.6% was down 2.2 percentage points from 31 December 2021, which included the impact of a valuation loss on financial instruments held as economic hedges of net interest income, recorded in other comprehensive income in equity. In respect of 1H22, the Board has announced an interim dividend of $0.09 per ordinary share. Given the path currently being implied by the market for policy rates, we have updated our returns target and we will now target a RoTE of at least 12% from 2023 onwards.

Delivery against Group financial targets

Return on average tangible equity (annualised) (%) <>

9.9%

(1H21: 9.4%)

We achieved an annualised RoTE of 9.9%, compared with 9.4% in 1H21. This included the 2.3 percentage point annualised favourable impact of a $1.8bn gain following the recognition of a deferred tax asset.

The impact of our growth and transformation programmes, together with the anticipated path of global interest rates, has given us the confidence to update our returns target. Despite continued macroeconomic uncertainty, we are now targeting a RoTE of at least 12% from 2023 onwards.

Adjusted operating expenses <>

$15.4bn

(1H21: $15.5bn)

Adjusted operating expenses were $15.4bn, a decrease of 1% compared with 1H21, mainly due to the impact of our cost-saving initiatives and a lower performance-related pay accrual for which the Group-wide phasing of the accrual is driven by the expected profile of full-year profits. These were partly offset by continued investments in technology and wealth in Asia, as well as the effects of higher inflation.

At 30 June 2022, our cost-reduction programmes had generated cumulative savings of $4.4bn, with costs to achieve of $4.6bn. We are on track to deliver cost saves at the high-end of our $5bn and $5.5bn range by the end of 2022, and spend around $7bn in costs to achieve. We now also expect to deliver an additional $1bn of cost saves from this programme in 2023.

Adjusted operating expenses for 2022 are expected to be in line with 2021, with further savings from our cost-reduction programme broadly offsetting inflationary impacts, continued investment and the impacts of acquisitions and disposals. We now aim to deliver 2023 cost growth of around 2%, compared with 2022 on an IFRS 4 basis, and intend to maintain strict cost discipline thereafter.

Gross RWA reductions

$114bn

At 30 June 2022, the Group had delivered cumulative gross RWA reductions of $114bn against our targeted gross RWA reduction of $110bn by the end of 2022. We now aim to achieve gross RWA reductions of $120bn or more by the end of 2022.

CET1 ratio

13.6%

Capital and dividends

At 30 June 2022, our CET1 ratio was 13.6%, down 2.2 percentage points from 31 December 2021, reflecting a decrease in CET1 capital of $16.8bn and an increase in RWAs of $13.4bn. The forecast loss on the disposal of our French retail operations is expected to impact our CET1 ratio by approximately 30bps in 2H22.

With profit generation and continued RWA actions, we aim to manage back to within our target CET1 range of 14% to 14.5% during the first half of 2023. While further share buy-backs remain unlikely in 2022, for future years we expect to return to shareholders excess capital over and above what is required for executing the strategy.

The Board has announced an interim dividend for 1H22 of $0.09 per ordinary share, to be paid in cash with no scrip alternative. The $2bn buy-back programme announced in October 2021 was completed on 20 April 2022, while the additional $1bn buy-back, which was announced in February 2022, concluded on 28 July 2022.

Given our current forecast returns trajectory, we now expect a dividend payout ratio of around 50% for 2023 and 2024. In line with our dividend policy, when calculating our dividend payout ratio, we retain the flexibility to adjust the earnings per ordinary share ('EPS') for non-cash significant items. In 2022, we intend to exclude the $1.8bn gain following the recognition of a deferred tax asset when calculating our dividend payout ratio. As previously disclosed, we also intend to exclude the 2H22 forecast loss on the sale of our retail banking operations in France when calculating our dividend payout ratio. We also intend to revert to paying quarterly dividends in 2023, although we expect the quarterly dividend for the first three quarters to initially be reinstated at a lower level than the historical quarterly dividend of $0.10 per share paid up to the end of 2019.

Interim dividend per ordinary share for 1H22

$0.09

HSBC Holdings plc Interim Report 2022

Reported results

	Half-year to			Quarter ended
Reported results	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	30 Jun 2022 $m	30 Jun 2021 $m	31 Mar 2022 $m
Net operating income before change in expected credit losses and other credit impairment charges ('revenue')	25,236	25,551	24,001	12,772	12,565	12,464
ECL	(1,090)	719	209	(448)	284	(642)
Net operating income	24,146	26,270	24,210	12,324	12,849	11,822
Total operating expenses	(16,419)	(17,087)	(17,533)	(8,107)	(8,560)	(8,312)
Operating profit/(loss)	7,727	9,183	6,677	4,217	4,289	3,510
Share of profit in associates and joint ventures	1,449	1,656	1,390	793	771	656
Profit before tax	9,176	10,839	8,067	5,010	5,060	4,166
Tax income/(expense)	39	(2,417)	(1,796)	762	(1,206)	(723)
Profit/(loss) after tax	9,215	8,422	6,271	5,772	3,854	3,443

Reported performance - 1H22 vs 1H21

Reported profit

Reported profit after tax of $9.2bn in 1H22 was $0.8bn higher than in 1H21. This included a $1.8bn gain on the recognition of a deferred tax asset from historical losses. This was as a result of improved profit forecasts for the UK tax group, which accelerated the expected utilisation of these losses.

Reported profit before tax of $9.2bn was $1.7bn lower, as reported net ECL charges compared with net ECL releases in 1H21. The net ECL charge in 1H22 included stage 3 charges, as well as the impact of heightened economic uncertainty and inflationary pressures. While reported revenue was lower, primarily due to foreign currency translation differences, it included the positive impact of rising interest rates across all of our global businesses, as well as the benefit of higher volatility to our MSS business. Wealth revenue in WPB was lower, mainly due to unfavourable market impacts in insurance manufacturing and lower investment distribution revenue, although sales in insurance were strong. Our reported share of profit from associates and joint ventures also decreased. These factors were partly offset by a 4% decrease in reported operating expenses, primarily reflecting the impact of foreign currency translation differences.

The fall in reported profit before tax included the adverse impact of foreign currency translation differences of $0.4bn, as well as losses of $0.3bn in 1H22 associated with the planned sales of our branch operations in Greece and our operations in Russia. It also included a $0.1bn increase in restructuring and other related costs.

We continue to be subject to foreign exchange volatility, and in particular with regard to the US dollar, which has strengthened relative to many major currencies. This will impact the translation of results from non-US dollar reporting entities in the Group, particularly in Europe. We intend to retranslate our net interest income guidance and the baseline for our cost guidance at each reporting period to remove the impact of foreign currency translation differences from these measures.

IFRS 17 'Insurance Contracts' sets the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. IFRS 17 is effective from 1 January 2023 and could have a significant adverse impact on the recognition of profits in our insurance business. For further details on the impact of IFRS 17 on the results of our insurance operations, including preliminary management estimates, see page 29.

Reported revenue

Reported revenue of $25.2bn in 1H22 was $0.3bn or 1% lower, primarily due to an adverse impact of foreign currency translation differences of $1.1bn. It also included losses of $0.3bn associated with the planned disposals mentioned above.

Net interest income grew by $1.4bn, reflecting the positive impact of interest rate rises, mainly in Global Liquidity and Cash Management ('GLCM') in CMB and GBM, and Personal Banking in WPB, partly offset by the adverse impact of foreign currency translation differences. In GBM, Global Foreign Exchange revenue benefited from elevated market volatility, and there were strong sales in our insurance business in WPB, which also included a $0.3bn gain following a pricing update for our policyholders' funds held on deposit with us in Hong Kong to reflect the cost to provide this service. Performance in Global Trade and Receivables Finance ('GTRF') remained strong, notably in CMB, as we grew balances during 1H22.

These increases were partly offset by adverse market impacts in life insurance manufacturing in WPB of $654m, primarily reflecting weaker performances in equity markets, compared with favourable market impacts of $413m in 1H21. Revenue was lower in investment distribution, as subdued customer sentiment led to reduced activity in equity markets, and Covid-19-related restrictions in Hong Kong in 1Q22 resulted in the temporary closure of parts of our branch network. In GBM, a reduction in Principal Investments revenue was driven by lower revaluation gains relative to 1H21. In addition, a reduction in Markets Treasury revenue, which is allocated to our global businesses, reflected lower disposal gains.

14	HSBC Holdings plc Interim Report 2022

Reported ECL

Reported ECL were a net charge of $1.1bn, compared with a net release of $0.7bn in 1H21. The 1H22 charge primarily reflected stage 3 charges of $0.8bn, including charges related to the commercial real estate sector in mainland China, as well as against Russia exposures. We also recognised additional stage 1 and stage 2 allowances to reflect heightened levels of economic uncertainty and inflationary pressures, in part offset by the release of most of our remaining Covid-19-related allowances. This compared with a net release in 1H21, primarily relating to Covid-19-related allowances previously built up in 2020.

We continue to expect our ECL charges to normalise towards 30bps of average loans in 2022, recognising the possible risk of further deterioration in the consensus economic outlook. We also continue to monitor external developments in certain key vulnerable sectors, particularly offshore commercial financing of the real estate sector in mainland China.

For further details on the calculation of ECL, including the measurement uncertainties and significant judgements applied to such calculations, the impact of the economic scenarios and management judgemental adjustments, see pages 67 to 75.

Reported operating expenses

Reported operating expenses of $16.4bn were $0.7bn or 4% lower than in 1H21. This included a favourable impact of $0.7bn from foreign currency translation differences, in part offset by an increase in restructuring and other related costs of $0.2bn.

The reduction also reflected the impact of our cost-saving initiatives of $1.1bn and a lower performance-related pay accrual of $0.4bn, for which the Group-wide phasing of the accrual is driven by the expected profile of full-year profits. Given profits in 1H21 benefited from significant ECL releases, we recognised a larger share of the accrual in the first half of the year relative to 1H22. These factors more than offset increases from our continued investments in technology of $0.4bn, gross of cost saves of $0.2bn, and in wealth in Asia of $0.2bn, as well as from other increases, including higher inflation, regulatory investments, growth in business volumes and marketing.

Reported share of profit in associates and joint ventures

Reported share of profit from associates and joint ventures of $1.4bn was $0.2bn or 13% lower than in 1H21, primarily as 1H21 included a higher share of profit from Business Growth Fund ('BGF') due to the recovery in asset valuations.

Tax

Tax in 1H22 was a credit of $39m, mainly due to a $1.8bn credit arising from the recognition of a deferred tax asset from historical tax losses in HSBC Holdings. This was as a result of improved profit forecasts for the UK tax group, which accelerated the expected utilisation of these losses and reduced the uncertainty regarding their recoverability. Excluding this, the effective tax rate for 1H22 was 19.4%, and was reduced by the remeasurement of deferred tax balances following the substantive enactment of legislation to reduce the rate of the UK banking surcharge from 8% to 3% from 1 April 2023. The effective tax rate for 1H21 was 22.3%.

Reported profit after tax in 1H22

$9.2bn

(1H21: $8.4bn)

Reported net interest income in 1H22

$14.5bn

Up 10% compared with 1H21

Reported performance - 2Q22 vs 2Q21

Reported profit

Reported profit after tax of $5.8bn in 2Q22 was $1.9bn higher than in 2Q21, and included a $1.8bn gain following the recognition of a deferred tax asset.

Reported profit before tax was stable at $5.0bn, which included losses of $0.3bn in 2Q22 associated with the planned sales of our branch operations in Greece and our operations in Russia, together with the adverse impact of foreign currency translation differences of $0.3bn.

Reported revenue grew by $0.2bn to $12.8bn, despite the adverse impact of foreign currency translation differences. Net interest income increased across all global businesses, mainly as a result of higher interest rates. Revenue growth also reflected a strong performance in Global Foreign Exchange in GBM and higher sales in life insurance manufacturing in WPB. These increases were partly offset by a net adverse movement in market impacts in life insurance manufacturing of $0.7bn and a reduction in Markets Treasury revenue reflecting lower disposal gains. Reported ECL in 2Q22 were $0.4bn, compared with a net ECL release of $0.3bn in 2Q21. Reported operating expenses of $8.1bn were $0.5bn lower due to the favourable impact of foreign currency translation differences. Increases from our continued investments and higher inflation were mitigated by the impact of our cost-saving initiatives of $0.5bn and strong cost discipline.

Reported profit after tax in 2Q22

$5.8bn

(2Q21: $3.9bn)

Net interest margin in 2Q22

1.35%

Up 9 basis points from 1Q22

HSBC Holdings plc Interim Report 2022

Adjusted results

Our reported results are prepared in accordance with International Financial Reporting Standards ('IFRSs') as detailed in the notes on the interim condensed financial statements on page 110.

We also present alternative performance measures (non-GAAP financial measures). These include adjusted performance, which we use to align internal and external reporting, identify and quantify items management believes to be significant, and provide insight into how management assesses period-on-period performance. Alternative performance measures are highlighted with the following symbol: <>

To derive adjusted performance, we adjust for:

- the period-on-period effects of foreign currency translation differences; and

- the effect of significant items that distort period-on-period comparisons, which are excluded to improve understanding of the underlying trends in the business.

The results of our global businesses are presented on an adjusted basis, which is consistent with how we manage and assess global business performance.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Revenue	25,690	24,734	23,577	956	4
ECL	(1,090)	675	174	(1,765)	>(100)
Total operating expenses	(15,376)	(15,520)	(15,447)	144	1
Operating profit	9,224	9,889	8,304	(665)	(7)
Share of profit in associates and joint ventures	1,449	1,649	1,377	(200)	(12)
Profit before tax	10,673	11,538	9,681	(865)	(7)

Adjusted performance - 1H22 vs 1H21

Adjusted profit before tax <>

Adjusted profit before tax of $10.7bn was $0.9bn lower, as adjusted net ECL charges compared with net ECL releases in 1H21. The net ECL charge in 1H22 included stage 3 charges, as well as the impact of heightened economic uncertainty and inflationary pressures. Adjusted revenue rose, primarily due to the positive impact of rising interest rates across all our global businesses, as well as the benefit of increased volatility to our MSS business. This was partly offset by unfavourable market impacts in insurance manufacturing, notwithstanding strong insurance sales, and lower investment distribution income in WPB. Adjusted operating expenses were 1% lower, reflecting continued strong cost discipline, while our adjusted share of profit from associates and joint ventures decreased.

Adjusted revenue <>

Adjusted revenue of $25.7bn was $1.0bn or 4% higher than in 1H21. The increase was driven by higher net interest income from the positive impact of interest rate rises and balance sheet growth, mainly in GLCM in CMB and GBM, and in Personal Banking in WPB. Global Foreign Exchange in GBM benefited from elevated market volatility, and there were strong sales in our insurance business in WPB, with the value of new business up by $0.2bn or 39%. In addition, insurance revenue also included a $0.3bn gain following a pricing update for our policyholders' funds held on deposit with us in Hong Kong to reflect the cost to provide this service. Performance in GTRF remained strong, notably in CMB, as we continued to grow balances during the first half of the year.

These increases were partly offset by net adverse movements in market impacts in life insurance manufacturing in WPB of $1.0bn, reflecting weaker performances in equity markets. Revenue was lower in investment distribution, as subdued customer sentiment led to reduced activity in equity markets, and Covid-19-related restrictions in Hong Kong in 1Q22 resulted in the temporary closure of parts of our branch network. In GBM, Principal Investments revenue fell due to lower revaluation gains relative to 1H21. Revenue relating to Markets Treasury decreased by $0.4bn due to lower disposal gains. This revenue is allocated to our global businesses.

Adjusted ECL <>

Adjusted ECL, which removes the period-on-period effects of foreign currency translation differences, were a net charge of $1.1bn, compared with a net release of $0.7bn in 1H21. The 1H22 charge primarily reflected stage 3 charges of $0.8bn, including charges related to the commercial real estate sector in mainland China, as well as against Russia exposures. We also recognised additional stage 1 and stage 2 allowances to reflect heightened levels of economic uncertainty and inflationary pressures, in part offset by the release of most of our remaining Covid-19-related allowances. This compared with a net release in 1H21 primarily relating to Covid-19-related allowances previously built up in 2020.

16	HSBC Holdings plc Interim Report 2022

Adjusted operating expenses <>

Adjusted operating expenses of $15.4bn were $0.1bn or 1% lower, reflecting the impact of our cost-saving initiatives of $1.1bn and a $0.4bn reduction in the performance-related pay accrual, for which the Group-wide phasing of the accrual is driven by the expected profile of full-year profits. Given profits in 1H21 benefited from significant ECL releases, we recognised a larger share of the accrual in the first half of the year relative to 1H22. These reductions mitigated increases from our continued investments in technology of $0.4bn, which is gross of cost saves of $0.2bn, and in wealth in Asia of $0.2bn, as well as from other increases, including higher inflation, regulatory investments, growth in business volumes and marketing.

The number of employees expressed in full-time equivalent staff ('FTE') at 30 June 2022 was 218,866, a decrease of 831 compared with 31 December 2021. The number of contractors at 30 June 2022 was 6,642, an increase of 450.

Adjusted share of profit in associates and joint ventures<>

Adjusted share of profit from associates and joint ventures of $1.4bn decreased by $0.2bn or 12%, primarily as 1H21 included a higher share of profit from BGF due to the recovery in asset valuations.

Reconciliation of reported to adjusted profit before tax

	Half-year to
	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m
Reported profit before tax	9,176	10,839	8,067
Currency translation	-	(371)	(249)
Significant items:	1,497	1,070	1,863
- customer redress programmes (total)	8	(1)	39
- disposals, acquisitions and investment in new businesses (total)	288	-	-
- fair value movements on financial instruments	220	194	48
- impairment of goodwill and other intangible assets	9	-	587
- restructuring and other related costs (total)	972	918	1,225
- settlements and provisions in connection with legal and regulatory matters	-	-	-
- past service costs of guaranteed minimum pension benefits equalisation	-	-	-
- goodwill impairment (share of profit in associates and joint ventures)	-	-	-
- currency translation on significant items	-	(41)	(36)
Adjusted profit before tax	10,673	11,538	9,681

Balance sheet and capital

Balance sheet strength

Total assets of $3.0tn were $27bn higher than at 31 December 2021 on a reported basis, and included adverse effects of foreign currency translation differences of $146bn. On a constant currency basis, total assets increased by $173bn, primarily from higher derivative asset balances and growth in loans and advances to customers. In addition, settlement accounts and cash collateral balances increased.

Reported loans and advances to customers of $1.0tn were $17bn lower, but $34bn higher on a constant currency basis. In WPB, we grew mortgage balances in the UK, Australia and Hong Kong, while in CMB and GBM, term lending and overdrafts increased. Reported customer accounts of $1.7tn decreased by $59bn, but increased by $24bn on a constant currency basis, as customers took advantage of rising interest rates.

Loans and advances to customers as a percentage of customer accounts was 62.3%, which was higher compared with 61.1% at 31 December 2021.

Distributable reserves

The distributable reserves of HSBC Holdings at 30 June 2022 were $33.6bn, compared with $32.2bn at 31 December 2021. The increase was primarily driven by profits generated of $6.5bn, offset by ordinary dividend payments and additional tier 1 coupon distributions of $4.2bn and $1bn related to our share buy-back programme.

Capital position

We actively manage the Group's capital position to support our business strategy and meet our regulatory requirements at all times, including under stress, while optimising our capital efficiency. To do this, we monitor our capital position using a number of measures. These include our capital ratios and the impact on our capital ratios as a result of stress.

Our CET1 ratio at 30 June 2022 was 13.6%, down from 15.8% at 31 December 2021, reflecting a decrease in CET1 capital of $16.8bn including valuation losses in equity from financial instruments as yield curves steepened, and an increase in RWAs of $13.4bn.

Liquidity position

We actively manage the Group's liquidity and funding to support our business strategy and meet regulatory requirements at all times, including under stress. To do this, we monitor our position using a wider set of measures, including the liquidity coverage ratio ('LCR') and the net stable funding ratio. At 30 June 2022, the Group's LCR was 134% and we held high-quality liquid assets of $657bn. For further details, see page 95.

HSBC Holdings plc Interim Report 2022

Wealth and Personal Banking

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

28 %

We serve more than 38 million customers from retail customers to ultra high net worth individuals and their families.

We offer locally-tailored products and services across multiple channels for our customers' everyday banking needs, as well as insurance, investment management, advisory and wealth solutions for those with more sophisticated requirements. Our global presence provides for customers with international demands.

WPB continued to execute strategic investments in our digital capabilities and colleagues, to expand our Wealth franchise in Asia, and address our customers' international needs. Performance was adversely impacted by a more normalised ECL charge, compared with releases in 1H21. Revenue performance benefited from our product diversification, as strong sales in our insurance business, the rise in interest rates and balance sheet growth mitigated adverse movements in market impacts in insurance, and lower customer activity in equity markets.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	10,922	10,980	10,439	(58)	(1)
ECL	(573)	38	215	(611)	>(100)
Operating expenses	(7,411)	(7,277)	(7,574)	(134)	(2)
Share of profit in associates and JVs	8	10	24	(2)	(20)
Profit before tax	2,946	3,751	3,104	(805)	(21)
RoTE excluding significant items (annualised, YTD) (%)	8.4	17.9	15.2

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Wealth	4,110	4,762	4,137	(652)	(14)
- investment distribution	1,617	1,847	1,573	(230)	(12)
- Global Private Banking	945	905	870	40	4
net interest income	388	310	320	78	25
non-interest income	557	595	550	(38)	(6)
- life insurance manufacturing	1,010	1,437	1,090	(427)	(30)
- asset management	538	573	604	(35)	(6)
Personal Banking	6,656	5,870	5,994	786	13
- net interest income	6,004	5,211	5,299	793	15
- non-interest income	652	659	695	(7)	(1)
Other¹	156	348	308	(192)	(55)
Net operating income²	10,922	10,980	10,439	(58)	(1)

1 'Other' includes Markets Treasury, HSBC Holdings interest expense and hyperinflation. It also includes the distribution and manufacturing (where applicable) of retail and credit protection insurance, disposal gains and other non-product specific income.

2 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

18	HSBC Holdings plc Interim Report 2022

Financial performance

Adjusted profit before tax of $2.9bn in 1H22 was $0.8bn lower than in 1H21. This reflected lower revenue in Wealth, driven by an adverse movement of $1.0bn in market impacts in life insurance manufacturing. This was largely offset by strong insurance sales and higher revenue within Personal Banking, as rising interest rates and balance sheet growth resulted in a $0.8bn increase in net interest income. There were also adjusted net ECL charges of $0.6bn, compared with a small net release in 1H21, while adjusted operating expenses were $0.1bn higher.

Adjusted revenue of $10.9bn was $0.1bn or 1% lower, despite adverse movements in market impacts of $1.0bn.

In Wealth, revenue of $4.1bn was down $0.7bn or 14%.

• In life insurance manufacturing, revenue was $0.4bn lower due to a net adverse movement in market impacts of $1,046m. Adverse market impacts of $654m compared with favourable market impacts in 1H21 of $392m, reflecting a weaker performance in equity markets. However, there was strong growth in the value of new business written, which increased by $0.2bn or 39% to $739m, reflecting the launch of innovative product offerings and digital enhancements, mainly in Hong Kong. In addition, there was a $0.3bn gain following a pricing update for our policyholders' funds held on deposit with us in Hong Kong to reflect the cost to provide this service. We also recognised a $0.1bn provisional gain on the completion of our acquisition of AXA Singapore.

• Investment distribution revenue was $0.2bn or 12% lower, as muted customer sentiment led to lower activity in equity markets, and as Covid-19-related restrictions in Hong Kong in 1Q22 resulted in the temporary closure of parts of our branch network.

• In Global Private Banking, revenue was $40m or 4% higher due to the positive impact of rising interest rates on net interest income and from higher annuity fee income. This increase was partly offset by a decline in brokerage and trading revenue, reflecting reduced client activity compared with a strong 1H21.

• Asset Management revenue was 6% lower, as adverse market conditions led to valuation losses on our seed investment book. This was partly offset by growth in management fees from resilient net new invested assets of $20bn.

In Personal Banking, revenue of $6.7bn was up $0.8bn or 13%.

• Net interest income was $0.8bn higher due to the benefit of interest rate rises and strong balance sheet growth. Deposit balances increased by $43bn or 5%, and mortgage lending rose by $22bn or 7%, with growth across all regions, notably in the UK and Hong Kong. Unsecured lending increased by $2bn or 6%, primarily in the UK and Mexico.

• Non-interest income decreased by $7m or 1%, primarily driven by a $33m reclassification of early repayment charges to net interest income in the UK to bring our approach in line with industry practice.

Other income fell by $0.2bn, mainly due to lower income allocated from Markets Treasury.

Adjusted ECL were a net charge of $0.6bn, compared with a small net release in 1H21 of Covid-19-related allowances. The charge in 1H22 reflected a deterioration in the forward economic outlook from heightened levels of uncertainty and inflationary pressures, although the credit quality of our portfolio remained resilient. The small net release in 1H21 was from Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses of $7.4bn were $0.1bn or 2% higher, mainly due to continued investments, notably in wealth in Asia, and the impact of higher inflation, which was partly offset by the benefits of our cost-saving initiatives and the Group-wide phasing of the performance-related pay accrual.

Divisional highlights

$39bn

WPB net new invested assets, which was a 9% increase compared with 1H21.

$22bn

Growth in mortgage book, notably in the UK (up 7%) and Hong Kong (up 5%) since 30 June 2021.

Adjusted profit before tax <>

($bn)

$2.9bn

Adjusted net operating income <>

($bn)

$10.9bn

HSBC Holdings plc Interim Report 2022

Commercial Banking

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

33 %

We support businesses in 53 countries and territories, ranging from small enterprises to large companies operating globally.

We help businesses grow by supporting their financial needs, facilitating cross-border trade and payment services, and providing access to products and services. We help them access international markets, provide expert financial advice and offer a full suite of products and services from across the Group's other businesses.

In the first half of 2022, CMB increased lending and enabled our clients to participate in the recovery in global trade volumes, while navigating recent supply chain constraints. We continued our investment in technology, launching new platforms to support customers and make banking with us easier. There was strong revenue performance in all core CMB products, notably in GLCM, due to interest rate rises. This was partly offset by a more normalised ECL charge relative to the net releases in 1H21.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	7,217	6,353	6,556	864	14
ECL	(288)	228	40	(516)	>(100)
Operating expenses	(3,351)	(3,371)	(3,355)	20	1
Share of profit in associates and JVs	-	1	-	(1)	(100)
Profit before tax	3,578	3,211	3,241	367	11
RoTE excluding significant items (annualised, YTD) (%)	12.6	11.1	10.8

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Global Trade and Receivables Finance	1,078	896	984	182	20
Credit and Lending	2,971	2,833	2,995	138	5
Global Liquidity and Cash Management	2,369	1,669	1,779	700	42
Markets products, Insurance and Investments, and Other¹	799	955	798	(156)	(16)
- of which: share of revenue from Markets and Securities Services and Banking products	608	504	514	104	21
Net operating income²	7,217	6,353	6,556	864	14

1 Includes CMB's share of revenue from the sale of Markets and Securities Services and Banking products to CMB customers. GBM's share of revenue from the sale of these products to CMB customers is included within the corresponding lines of the GBM management view of adjusted revenue. Also includes allocated revenue from Markets Treasury, HSBC Holdings interest expense and hyperinflation.

2 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

20	HSBC Holdings plc Interim Report 2022

Financial performance

Adjusted profit before tax of $3.6bn was $0.4bn or 11% higher than in 1H21. This was driven by an increase in adjusted revenue in all core CMB products, notably including a 51% increase in GLCM net interest income. This was partly offset by an adjusted net ECL charge in 1H22, compared with Covid-19-related releases in 1H21. Adjusted operating expenses were down 1%, as cost discipline more than offset continued investment spend.

Adjusted revenue of $7.2bn was $0.9bn or 14% higher.

• In GLCM, revenue increased by $0.7bn or 42%, with double-digit growth across all regions, particularly in Europe and Asia. This was driven by higher margins, reflecting interest rate rises and pricing actions, as well as average balance growth of 8%. Period end balances were 6% higher compared with 30 June 2021. There was also an increase of 23% in fee income, with growth across all regions, as we delivered on our strategic fee initiatives.

• In GTRF, revenue increased by $0.2bn or 20%, with double-digit percentage growth across all regions, notably in Asia and the UK. This was driven by a continued increase in average trade balances, which rose by 25% compared with 1H21. Trade period end balances at 30 June 2022 increased by 8% compared with 31 December 2021, and we benefited from improved margins. We grew fee income by 9%.

• In Credit and Lending, revenue increased by $0.1bn or 5%, with growth across all regions, driven by wider margins and a 1% growth in average balances, compared with 1H21. Period end balances at 30 June 2022 were 4% higher compared with 31 December 2021, with growth in North America and Asia. In addition, fee income grew by 4%.

• In Market products, Insurance and Investments, and Other, revenue decreased by $0.2bn or 16%, reflecting a lower allocation of Markets Treasury revenue of $0.1bn and the adverse effects of hyperinflation accounting of $0.1bn. This was partly offset by a $0.1bn or 21% increase in collaboration revenue from GBM products, notably Foreign Exchange.

Adjusted ECL were a net charge of $0.3bn, mainly related to stage 3 charges, notably against exposures in the commercial real estate sector in mainland China. Our stage 1 and stage 2 ECL charges were a net release in 1H22, as a release of Covid-19-related allowances, notably relating to the UK hotels sector, was partly offset by the effects of a deterioration in the forward economic outlook reflecting heightened levels of uncertainty and inflationary pressures. This compared with a net ECL release of $0.2bn in 1H21, reflecting the release of Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses of $3.4bn were $20m or 1% lower, reflecting continued cost discipline on discretionary spend and hiring efficiencies, as well as the impact of our cost-saving initiatives and the Group-wide phasing of the performance-related pay accrual. These reductions more than offset continued investment in technology and the impact of higher inflation.

Divisional highlights

20%

Increase in adjusted net interest income, notably 51% in GLCM and 33% in GTRF.

12%

Increase in adjusted net fee income, with growth across all products.

Adjusted profit before tax <>

($bn)

$3.6bn

Adjusted net operating income <>

($bn)

$7.2bn

HSBC Holdings plc Interim Report 2022

Global Banking and Markets

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

27 %

We support multinational corporates, financial institutions and institutional clients, as well as public sector and government bodies. We are leaders in facilitating global trade and payments, particularly into and within Asia and the Middle East, enabling our clients in the East and West to achieve their objectives by accessing our expertise and geographical reach. Our product specialists deliver a comprehensive range of transaction banking, financing, capital markets and advisory, and risk management services.

GBM continued to invest in technology in 1H22 to support our clients and to improve our operational resilience, while achieving on our cost-saving initiatives. We delivered a good revenue performance due to elevated levels of volatility in financial markets and rising interest rates. Adjusted profit before tax decreased due to ECL charges that reflected heightened levels of economic uncertainty, compared with ECL releases in 1H21.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	7,841	7,518	6,878	323	4
ECL	(227)	405	(80)	(632)	>(100)
Operating expenses	(4,735)	(4,724)	(4,831)	(11)	-
Share of profit in associates and JVs	-	-	-	-	-
Profit before tax	2,879	3,199	1,967	(320)	(10)
RoTE excluding significant items (annualised, YTD) (%)	10.9	10.7	8.6

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Markets and Securities Services	4,700	4,257	3,741	443	10
- Securities Services	973	885	969	88	10
- Global Debt Markets	436	683	164	(247)	(36)
- Global Foreign Exchange	2,214	1,618	1,621	596	37
- Equities	616	615	566	1	-
- Securities Financing	468	421	428	47	11
- Credit and funding valuation adjustments	(7)	35	(7)	(42)	>(100)%
Banking	3,399	3,162	3,231	237	7
- Global Trade and Receivables Finance	373	344	347	29	8
- Global Liquidity and Cash Management	1,164	856	919	308	36
- Credit and Lending	1,251	1,261	1,257	(10)	(1)
- Capital Markets and Advisory	443	587	627	(144)	(25)
- Other¹	168	114	81	54	47
GBM Other	(258)	99	(94)	(357)	>(100)%
- Principal Investments	81	235	139	(154)	(66)
- Other²	(339)	(136)	(233)	(203)	>(100)%
Net operating income³	7,841	7,518	6,878	323	4

1 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.

2 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and hyperinflation.

3 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

22	HSBC Holdings plc Interim Report 2022

Financial performance

Adjusted profit before tax of $2.9bn was $0.3bn or 10% lower than in 1H21. This was driven by an adjusted net ECL charge in 1H22 of $0.2bn, primarily due to provisions taken in the first quarter, compared with a net release of $0.4bn in 1H21. Adjusted revenue grew, while adjusted operating expenses were broadly stable.

Adjusted revenue of $7.8bn was $0.3bn or 4% higher.

In MSS, revenue increased by $0.4bn or 10%, driven by strong client activity and robust risk management, despite adverse movements in credit and funding valuation adjustments of $42m.

• In Global Foreign Exchange, revenue growth of $0.6bn or 37% reflected increased client activity and risk management due to elevated market volatility and the macroeconomic impacts from rising inflation and increasing interest rates.

• In Securities Services, revenue grew by $0.1bn or 10% from higher net interest income, as global interest rates rose, partly offset by lower fee income, as a fall in market indices adversely impacted asset valuations.

• In Securities Financing, revenue increased by $47m or 11% from increased client activity in prime finance, partly offset by a more challenging macroeconomic environment for repurchase agreement products.

• In Global Debt Markets, revenue fell by $0.2bn or 36%, reflecting lower primary issuances and reduced client activity due to uncertainty and challenging market conditions.

In Banking, revenue increased by $0.2bn or 7%.

• In GLCM, revenue increased by $0.3bn or 36%, driven by a rise in net interest income due to higher global interest rates and an 8% growth in average balances. There was also a 16% increase in fee income, as we delivered on our strategic initiatives.

• Capital Markets and Advisory revenue decreased by $0.1bn or 25%, within the context of a significant reduction in the global market fee pool, particularly in equity and debt capital markets.

In GBM Other, Principal Investments revenue fell by $0.2bn, as 1H22 included lower revaluation gains compared with 1H21. This also included a reduction in revenue allocated from Markets Treasury.

Adjusted ECL were a net charge of $0.2bn, compared with a release of $0.4bn in 1H21. The net charge in 1H22 reflected a deterioration in the forward economic outlook due to heightened levels of uncertainty and inflationary pressures. This compared with the net release in 1H21 of Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses were broadly unchanged, as the impact of our cost-saving initiatives and the Group-wide phasing of the performance-related pay accrual helped fund strategic investments across key transformation initiatives, and mitigated the impact of higher inflation.

Divisional highlights

47%

Percentage of adjusted revenue generated in Asia in 1H22.

36%

Revenue increase in GLCM compared with 1H21.

Adjusted profit before tax <>

($bn)

$2.9bn

Adjusted net operating income <>

($bn)

$7.8bn

HSBC Holdings plc Interim Report 2022

Corporate Centre

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

12 %

The results of Corporate Centre primarily comprise the share of profit from our interests in our associates and joint ventures. It also includes Central Treasury, stewardship costs and consolidation adjustments.

Corporate Centre performance in 1H22 reflected lower adjusted revenue and a decrease in the adjusted share of profit from associates and joint ventures, partly offset by a reduction in adjusted operating expenses.

Adjusted results<>	Half-year to			1H22 vs 1H21
Adjusted results<>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	(290)	(117)	(296)	(173)	>(100)
ECL	(2)	4	(1)	(6)	>(100)
Operating expenses	121	(148)	313	269	>100
Share of profit in associates and JVs	1,441	1,638	1,353	(197)	(12)
Profit before tax	1,270	1,377	1,369	(107)	(8)
RoTE excluding significant items (annualised, YTD) (%)	5.3	5.1	5.6

Financial performance

Adjusted profit before tax of $1.3bn was $0.1bn or 8% lower.

Adjusted revenue decreased by $0.2bn, mainly due to transactional foreign currency-related valuation losses. The reduction also included the non-recurrence of 1H21 gains related to the revaluation of assets.

Adjusted operating expenses decreased by $0.3bn due to an increase in costs allocated to our global businesses.

Adjusted share of profit from associates and joint ventures of $1.4bn decreased by $0.2bn, primarily as 1H21 included a higher share of profit from BGF due to the recovery in asset valuations.

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Central Treasury¹	(28)	(54)	(45)	26	48
Legacy portfolios	4	15	(47)	(11)	(73)
Other²	(266)	(78)	(204)	(188)	>(100)%
Net operating income³	(290)	(117)	(296)	(173)	>(100)%

1 Central Treasury includes adverse valuation differences on issued long-term debt and associated swaps of $28m (1H21: losses of $54m; 2H21: losses of $45m).

2 Revenue from Markets Treasury, HSBC Holdings net interest expense and Argentina hyperinflation are allocated out to the global businesses, to align them better with their revenue and expense. The total Markets Treasury revenue component of this allocation for 1H22 was $877m (1H21: $1,269m; 2H21: $965m).

3 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

24	HSBC Holdings plc Interim Report 2022

Risk overview

Active risk management helps us to achieve our strategy, serve our customers and communities and grow our business safely.

Managing risk

Political tensions, together with the risk of a global economic slowdown and high inflationary pressures, have resulted in an increasingly fragmented macroeconomic, trade and regulatory environment.

Global commodity markets have been significantly impacted by the Russia-Ukraine war, leading to supply chain disruptions and increased prices for both energy and raw materials. The continuation of - or any further escalation in - the Russia-Ukraine war could have additional economic, social and political consequences. These include further sanctions and trade restrictions, longer-term changes in the macroeconomic environment with the risk of higher and sustained inflation, and a continued increase in energy prices.

The macroeconomic, trade and regulatory environment has been further impacted with market concerns regarding potential impacts following instability in China's commercial real estate sector. Continued tensions between China and the US, the UK, the EU, India and other countries, and developments in Hong Kong and Taiwan, may affect the Group by creating regulatory, reputational and market risks. We continue to monitor the situation closely.

We continued to focus on improving the quality and timeliness of the data used to inform management decisions, through measures such as early warning indicators, prudent active management of our risk appetite, and ensuring regular communication with our Board and key stakeholders.

While the financial performance of our operations varied in different geographies, our balance sheet and liquidity remained strong.

Our risk appetite

Our risk appetite defines our desired forward-looking risk profile, and informs the strategic and financial planning process. It provides an objective baseline to guide strategic decision making, helping to ensure that planned business activities provide an appropriate balance of return for the risk assumed, while remaining within acceptable risk levels. Risk appetite supports senior management in allocating capital, funding and liquidity optimally to finance growth, while monitoring exposure to non-financial risks.

Capital and liquidity remain at the core of our risk appetite framework, with forward-looking statements informed by stress testing. We continue to develop our climate risk appetite as we engage with businesses on including climate risk in decision making and starting to embed climate risk appetite into business planning.

At 30 June 2022, our CET1 ratio and ECL charges were within their defined risk appetite thresholds. Monitoring of measures against our risk appetite remains a key focus. During the first half of 2022, we enhanced the monitoring and forecasting of our CET1 ratio through regular reviews in periods of high volatility.

Key risk appetite metrics

Component	Measure	Risk appetite	1H22
Capital	CET1 ratio - end point basis	≥13.0%	13.6 %
Change in expected credit losses and other credit impairment charges	Change in expected credit losses and other credit impairment charges as a % of advances: Retail (WPB)	≤0.50%	0.08%
	Change in expected credit losses and other credit impairment charges as a % of advances: Wholesale (GBM, CMB)	≤0.45%	0.09%

Stress tests

We regularly conduct stress tests to assess the resilience of our balance sheet and our capital adequacy, as well as to provide actionable insights into how key elements of our portfolios may behave during crises. We use the outcomes to calibrate our risk appetite and to review the robustness of our strategic and financial plans, helping to improve the quality of management's decision making. The results from the stress tests also drive recovery and resolution planning to help enhance the Group's financial stability under various macroeconomic scenarios. The selection of stress scenarios is based upon the identification and assessment of our top risks, emerging risks and our risk appetite. During the first half of 2022, assessments were made of the impact on the Group of the Russia-Ukraine war and the consequences from the deteriorating global economic outlook.

Our latest solvency stress testing results published by the Bank of England ('BoE') in December 2021 confirmed the Group was sufficiently capitalised.

The 2022 BoE annual cyclical scenario was originally due in June 2022, although this has been postponed in light of the uncertainty related to the Russia-Ukraine war. The exercise will now commence later in the third quarter of 2022.

We will also conduct our own internal stress test in the second half of 2022, which will explore the potential impacts of key vulnerabilities to which we are exposed, including geopolitical issues, related macroeconomic headwinds and the continued impact of the Covid-19 pandemic. The internal stress test will consider the impacts of various risk scenarios across all risk types and on capital resources.

To support the requirements for assessing the impacts of climate change, we have developed a set of capabilities to execute climate stress testing and scenario analysis. These are used to improve our understanding of our risk exposures for risk management and business decision making. In 2021, the Prudential Regulation Authority requested all major UK banks to run a climate-related stress test to explore the impacts of a set of scenarios: an early policy action, a late policy action and no additional policy action. This was followed in the first half of 2022 with a second round to explore our strategic responses to such scenarios. We have also conducted climate change stress testing exercises for the European Central Bank and the Monetary Authority of Singapore. We continue to develop our climate change capabilities and methodologies, and we are planning to execute in the second half of 2022 an internal climate scenario analysis to identify challenges and opportunities to our net zero strategy, as well as to inform capital planning and risk appetite.

HSBC Holdings plc Interim Report 2022

Our operations

We remain committed to investing in the reliability and resilience of our IT systems and critical services, including those provided by third parties, that support all parts of our business. We do so to help protect our customers, affiliates and counterparties, and to help ensure that we minimise any disruption to services that could result in reputational and regulatory consequences. In our approach to defend against these threats, we invest in business and technical controls to help us detect, manage and recover from issues, including data loss, in a timely manner.

We have made progress on the implementation of our business transformation plans, and as we shift from transformation to growth-focused initiatives, we will continue to seek to manage the risks associated with any structural change, which include execution, operational, governance, reputational, conduct and financial risks.

For further details on our risk management framework and risks associated with our banking and insurance manufacturing operations, see pages 121 and 135 of the Annual Report and Accounts 2021, respectively.

Geopolitical and macroeconomic risks

Heightened geopolitical tensions, alongside other factors, have disrupted global supply chains and created potential ramifications for the Group. The Russia-Ukraine war has elevated geopolitical instability and resulted in the US, the UK and the EU, as well as other countries, imposing significant sanctions and trade restrictions against Russia, including against numerous Russian government officials and individuals with close ties to the Russian government, and a number of Russian financial institutions and companies. Russia has implemented certain countermeasures in response.

The Russia-Ukraine war, alongside the economic impacts that continue to result from the Covid-19 pandemic, has increased commodity prices, with the resulting sharp increase in inflation creating further challenges for monetary authorities and our customers. Central banks both in developed and emerging markets have stepped up the pace of monetary policy tightening in 2022 to help ease inflationary pressures. Price pressures may increase further in coming months as the effects of the war and supply chain disruptions intensify. This may lead central banks to increase tightening to a greater level than currently envisaged. There is an increasing risk that a combination of significant monetary policy tightening and worse-than-anticipated economic effects from the Russia-Ukraine war, including as a result of continued pressure exerted through extensive sanctions, trade restrictions and Russian countermeasures, could precipitate a recession in parts of the global economy.

Higher inflationary concerns around the world and the resulting economic uncertainty are having an impact on ECL. We have continued to carry out enhanced monitoring of model outputs and use of model overlays, including management adjustments based on the expert judgement of senior credit risk managers. Inflation has been considered both directly in certain models, and assessed via adjustments where not directly considered. Government programmes implemented during the Covid-19 pandemic to support businesses and individuals also impacted the level of credit losses, which in turn may have impacted the longer-term reliability of loss and capital models. As a result, these models may require significant changes.

Political tensions between China and the US, extending to the UK, the EU, India and other countries, and political developments in Hong Kong and Taiwan, may affect the Group and its customers by creating regulatory, reputational and market risks. The US, the UK, the EU, Canada and other countries have imposed various sanctions and trade restrictions on Chinese persons and companies. In response to foreign sanctions and trade restrictions, China has imposed sanctions and trade restrictions and enacted laws that could impact the Group and its customers.

Market participants remain concerned about the repercussions for the Chinese domestic economy from instability in its commercial real estate sector, including deteriorating operating performance and challenging liquidity conditions, and more recently from China's government-imposed lockdown restrictions in major Chinese cities in response to elevated Covid-19 infections. Such repercussions may occur directly through financial exposures to the Chinese commercial real estate sector, or indirectly through the effect of a slowdown in economic activity in China and on global supply chains in various sectors. Despite a recent improvement in economic indicators as lockdown restrictions are lifted, we continue to monitor the situation closely, including potential indirect impacts, and seek to take mitigating actions as required.

Strains in the relationship between the UK and the EU, which to a certain extent have had less of a focus in light of the Russia-Ukraine war, have come back to the fore through a number of potential areas of tension, notably the Northern Ireland Protocol, with possible impacts for the operation of the EU-UK Trade and Cooperation Agreement ('TCA'). The ongoing leadership election to replace Boris Johnson as prime minister has added to that uncertainty.

In December 2021, the OECD published model rules that provided a template for countries to implement a new global minimum tax rate of 15%. In January 2022, the UK government opened a consultation on how the UK plans to implement the model rules, with guidance to accompany these rules published in March 2022. In July 2022, the UK government issued draft legislation to implement these rules and has confirmed that the final legislation will be effective for accounting periods beginning on or after 31 December 2023.

The impact on HSBC will depend on how the UK implements the model rules, as well as the profitability and local tax liabilities of HSBC's operations in each tax jurisdiction from 2024. Separately, potential changes to tax legislation and tax rates in the countries in which we operate could increase our effective tax rate in future as governments seek revenue to pay for Covid-19 support packages.

We continue to monitor, and seek to manage, the potential implications of all the above developments on our customers and our business.

For further details on our approach to geopolitical and macroeconomic risks, see 'Areas of special interest' on page 59.

26	HSBC Holdings plc Interim Report 2022

Risks related to Covid-19

While the global vaccination roll-out has helped reduce the social and economic impact of the Covid-19 pandemic, new variants and sub-variants pose a continuing risk. Countries continue to differ in their approach to restrictions on activity and travel, and if these differences persist, this could prolong or worsen supply chain and international travel disruptions. Most notably, China's government-imposed lockdown restrictions in major Chinese cities, which were only eased recently, have impacted China's economy, Asia tourism and global supply chains adversely. A full return to pre-pandemic levels of social interaction across all our key markets remains unlikely in the short to medium term.

While our operations have been resilient throughout the pandemic, the operational support functions on which the Group relies are based in countries around the world, some of which have been particularly affected by Covid-19. As a result, business continuity responses have been implemented and most service level agreements have been maintained in places where the Group operates.

We continue to monitor the situation closely and, given the significant uncertainties related to the post-pandemic landscape, additional mitigating actions may be required.

For further details on our approach to the risks related to Covid-19, see 'Areas of special interest' on page 60.

Climate risk

The pace of regulatory developments focusing on climate risk management, disclosures, and stress testing and scenario analysis has continued to increase in 2022. The Russia-Ukraine war has impacted global commodity markets, with short-term supply concerns driving changes in energy policy in Europe. While these policy changes may affect the near-term climate transition path for HSBC and our customers, we remain committed to our climate ambition to align our own operations and supply chain to net zero by 2030, and the financed emissions from our portfolio of customers to net zero by 2050.

For further details on our approach to Climate risk, see 'Areas of special interest' on page 60.

Ibor transition

The publication of sterling, Swiss franc, euro and Japanese yen Libor interest rate benchmarks, as well as Euro Overnight Index Average ('Eonia'), ceased from the end of 2021. Our interbank offered rate ('Ibor') transition programme - which is tasked with the development of new near risk-free rate ('RFR') products and the transition of legacy Ibor products - has continued to support the transition of a limited number of remaining contracts in these benchmarks to RFRs, or alternative reference rates.

During the first half of 2022, we continued to develop processes, technology and RFR product capabilities throughout our Group, particularly in entities that have US dollar Libor contracts that require transition. We also implemented controls, and are monitoring to help ensure we do not undertake any new US dollar Libor contracts outside of agreed-upon exemptions, and that we control the associated risks. We have begun to engage with our clients to support them through the transition of their US dollar Libor and other demising Ibor contracts, with progress made on the transition of trade, hedging and uncommitted lending facilities.

We continue to actively engage in market and industry discussions around the transition of US dollar Libor and other demising Ibors, and consultations related to ceasing the use of 'synthetic' sterling and Japanese yen Libor. Additionally, following the recent announcement relating to the cessation of the Canadian dollar offered rate ('CDOR') after June 2024, we are assessing the impacts of this measure and will take appropriate actions to effect the transition.

We continue to be exposed to risks associated with Ibor transition. These key risks remain unchanged and include regulatory compliance risk, resilience risk, financial reporting risk, legal risk, model risk and market risk. We have implemented mitigating controls, where required, and continue to actively manage and monitor these risks.

For further details on our approach to Ibor transition, see 'Areas of special interest' on page 61.

Top and emerging risks

Our top and emerging risks report identifies forward-looking risks so that they can be considered in determining whether any incremental action is needed to either prevent them from materialising or to limit their effect.

Top risks are those that have the potential to have a material adverse impact on the financial results, reputation or business model of the Group. We actively manage and take actions to mitigate our top risks. Emerging risks are those that, while they could have a material impact on our risk profile were they to occur, are not considered immediate and are not under active management.

Our suite of top and emerging risks is subject to regular review by senior governance forums. We continue to monitor closely the identified risks and ensure management actions are in place, as required.

Our current top and emerging risks are summarised on the next page and discussed in more detail on page 124 of the Annual Report and Accounts 2021.

HSBC Holdings plc Interim Report 2022

Risk	Trend	Description
Externally driven
Geopolitical and macroeconomic risks	^	Our operations and portfolios are subject to risks associated with political instability, civil unrest and military conflict, which could lead to disruption of our operations, physical risk to our staff and/or physical damage to our assets. Heightened geopolitical tensions, alongside other factors, have also disrupted supply chains globally. Inflation and rising interest rates may prompt a marked global slowdown that could affect our credit portfolio.
Technology and cybersecurity risk	>	We face a risk of service disruption resulting from technology failures or malicious activity by internal or external threats. In response to the recent geopolitical events, we have further strengthened our monitoring approach. We operate a continuous improvement programme to protect our technology operations, and to counter a fast evolving cyber threat environment.
Evolving regulatory environment risk	>	The compliance risk environment has become more complex, given heightened geopolitical tensions. There has been increased regulatory focus on operational and cyber resilience, crypto-asset-related risks and sanctions, and wider anti-money laundering controls. These, alongside other regulatory priorities, may result in change requirements across the Group in the short to medium term. We continue to monitor regulatory and wider industry developments closely and engage with regulators as appropriate.
Financial crime risk	>	We continue to support our customers against a backdrop of complex geopolitical, socio-economic and technological challenges, including the Russia-Ukraine war. HSBC is monitoring the direct and indirect impacts of the war on the Group, and using its sanctions compliance capabilities to respond to the new sanctions regulations, noting the challenges that arise in implementing the complex, novel and ambiguous aspects of certain of the sanctions.
Ibor transition risk	>	We are primarily exposed to regulatory compliance, legal and resilience risks as part of the transition away from demising Ibor benchmarks, in advance of their cessation dates, to new reference rates. As a result, we continue to take into account the fairness of client outcomes, our compliance with regulatory expectations and the operation of our systems and processes. We continue to support the transition of a small number of contracts in demised Ibors and have begun our customer engagement for demising Ibors, specifically US dollar Libor.
Environmental, social and governance ('ESG') risks	^	We are subject to ESG risks relating to climate change, nature and human rights. This risk has increased owing to the pace and volume of regulatory developments globally and stakeholders placing more emphasis on financial institutions' actions and investment decisions in respect of ESG matters. If we fail to meet evolving regulatory and stakeholder expectations on ESG risk management as a result of any event, behaviour, action or inaction, this may result in financial and non-financial risks for HSBC, including potential reputational consequences.
Digitalisation and technological advances risk	>	Developments in technology and changes in regulations are enabling new entrants to the banking industry, as well as new products and services offered by our existing competitors. This challenges us to continue to innovate to take advantage of new digital capabilities to best serve our customers, and adapt our products to attract and retain customers and employee talent.
Internally driven
Risks associated with workforce capability, capacity and environmental factors with potential impact on growth	>	We are subject to risks associated with employee retention, talent availability, and compliance with employment laws and regulations. The Covid-19 pandemic has also created workforce capacity challenges and impacted employee well-being. Heightened demand for talent in key labour markets and continuing Covid-19-related challenges have led to increased attrition and attraction challenges, and continuing pressure on employees.
Risks arising from the receipt of services from third parties	>	We procure services and goods from a range of third parties. It is critical that we have appropriate risk management policies and processes over the selection and governance of third parties. This includes third parties' supply networks, particularly for key activities that could affect our operational resilience. Any deficiency in the management of risks associated with our third parties could affect our ability to support our customers and meet regulatory expectations.
Model risk	>	Evolving regulatory requirements are driving material changes to models across the banking industry, with a particular focus on capital models. New technologies such as machine learning are driving changes to the model landscape, and the Group's strategic focus on climate risk requires the development of new methods that will effectively model climate-related factors and activities. A key area of focus is ensuring our standards, processes and controls are adequate to identify, measure and manage the resulting model risks.
Data risk	>	We use data to serve our customers and run our operations, often in real-time within digital experiences and processes. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet regulatory requirements could be impacted. We need to ensure that data is kept confidential, and that we comply with the growing number of laws and regulations governing data privacy and the cross-border movement of data.
Change execution risk	>	Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability to achieve our strategic objectives. We must monitor, manage and oversee change execution risk to ensure our change portfolios and initiatives continue to deliver the right outcomes for our customers, people, investors and communities.

^ Risk heightened during the first half of 2022

> Risk remained at the same level as 2021

28	HSBC Holdings plc Interim Report 2022

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IR FLFIETFILIIF

RNS Number : 5061U

HSBC Holdings PLC

01 August 2022

HSBC Holdings plc

Interim Report 2022

The document is now available on the Company's website at:

https://www.hsbc.com/investors/results-and-announcements/all-reporting/group

HSBC Holdings plc

Interim Report 2022

Opening up a world of opportunity

Contents

Overview

2 Highlights

4 Group Chief Executive's review

8 Our strategy

11 How we do business

13 Financial overview

18 Global businesses

25 Risk overview

Interim management report

29 Financial summary

36 Global businesses

46 Geographical regions

56 Reconciliation of alternative performance measures

59 Risk

59 - Key developments in the first half of 2022

59 - Areas of special interest

63 - Credit risk

89 - Treasury risk

97 - Market risk

99 - Insurance manufacturing operations risk

102 Directors' responsibility statement

Interim condensed financial statements

103 Independent review report to HSBC Holdings plc

104 Interim condensed financial statements

110 Notes on the interim condensed financial statements

Additional information

131 Shareholder information

137 Forward-looking statements

138 Certain defined terms

139 Abbreviations

A reminder

The currency we report in is US dollars.

Adjusted measures

Further explanation may be found on page 16.

In this document we use the following abbreviations to refer to reporting periods:

1H22 First half of 2022 2Q22 Second quarter of 2022

2H21 Second half of 2021 1Q22 First quarter of 2022

1H21 First half of 2021 2Q21 Second quarter of 2021 1Q21 First quarter of 2021

Cover image: Opening up a world of opportunity

We connect people, ideas and capital across the world, opening up opportunities for our customers and the communities we serve.

Our global businesses

Wealth and Personal Banking ('WPB')

We help millions of our customers look after their day-to-day finances and manage, protect and grow their wealth.

Commercial Banking ('CMB')

Our global reach and expertise help domestic and international businesses around the world unlock their potential.

Global Banking and Markets ('GBM')

We provide a comprehensive range of financial services and products to corporates, governments and institutions.

Opening up a world of opportunity

Our ambition is to be the preferred international financial partner for our clients.

Our purpose, ambition and values reflect our strategy and support our focus on execution.

Read more on our purpose and values on pages 4 and 15 of our Annual Report and Accounts 2021.

Key themes

Financial performance

Read more on page 10.

Delivery against our financial targets

Return on average tangible equity (annualised) <>

9.9%

Revised target: ≥12% from 2023 onwards (updated from ≥10% in the medium term).

(1H21: 9.4%)

Adjusted operating expenses <>

$15.4bn

Target: 2022 adjusted operating expenses in line with 2021.

(1H21: $15.5bn)

Gross risk-weighted asset reduction

$114bn

since the start of the programme.

Target: >$110bn by the end of 2022.

Common equity tier 1 capital ratio

13.6%

Target: >14%, managing in the range of 14% to 14.5% in the medium term; and manage the range down further long term.

(31 December 2021: 15.8%)

Interim dividend per ordinary share for 1H22

$0.09

Further explanation of performance against Group financial targets may be found on page 13.

Performance in 1H22

Reported profit after tax

$9.2bn

(1H21: $8.4bn)

Basic earnings per share

$0.42

(1H21: $0.36)

Gender diversity

32.5%

Women in senior leadership roles.

Target: 35% by 2025.

(31 December 2021: 31.7%)

Sustainable finance and investment

$170.8bn

Cumulative total provided and facilitated since January 2020.

Ambition: $750bn to $1tn by 2030.

(31 December 2021: $126.7bn)

Read more on our financial overview on page 13.

Our data dictionary, which includes a definition of sustainable finance and investments, can be found at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

HSBC Holdings plc Interim Report 2022

Highlights

Financial performance (1H22 vs 1H21)

• Net interest margin ('NIM') of 1.30% rose by 9 basis points ('bps').

• The Board has approved an interim dividend for 1H22 of $0.09 per ordinary share, to be paid in cash.

Financial performance (2Q22 vs 2Q21)

Outlook

• We continue to expect our ECL charges to normalise towards 30bps of average loans in 2022, recognising the possible risk of further deterioration in the consensus economic outlook.

2	HSBC Holdings plc Interim Report 2022

Key financial metrics

	Half-year to
	30 Jun	30 Jun	31 Dec
	2022	2021	2021
Reported results
Reported revenue ($m)	25,236	25,551	24,001
Reported profit before tax ($m)	9,176	10,839	8,067
Reported profit after tax ($m)	9,215	8,422	6,271
Profit attributable to the ordinary shareholders of the parent company ($m)	8,289	7,276	5,331
Cost efficiency ratio (%)	65.1	66.9	73.1
Net interest margin (%)¹	1.30	1.21	1.20
Basic earnings per share ($)	0.42	0.36	0.26
Diluted earnings per share ($)	0.41	0.36	0.26
Alternative performance measures
Adjusted revenue ($m)	25,690	24,734	23,577
Adjusted profit before tax ($m)	10,673	11,538	9,681
Adjusted cost efficiency ratio (%)	59.9	62.7	65.5
Expected credit losses and other credit impairment charges ('ECL') (annualised) as % of average gross loans and advances to customers (%)	0.21	(0.14)	(0.03)
Return on average ordinary shareholders' equity (annualised) (%)¹	9.7	8.4	7.1 %
Return on average tangible equity (annualised) (%)^1,2	9.9	9.4	8.3 %

	At
	30 Jun	30 Jun	31 Dec
	2022	2021	2021
Balance sheet
Total assets ($m)	2,985,420	2,976,005	2,957,939
Net loans and advances to customers ($m)	1,028,356	1,059,511	1,045,814
Customer accounts ($m)	1,651,301	1,669,091	1,710,574
Average interest-earning assets ($m)	2,233,321	2,188,991	2,209,513
Loans and advances to customers as % of customer accounts (%)	62.3	63.5	61.1
Total shareholders' equity ($m)	188,382	198,218	198,250
Tangible ordinary shareholders' equity ($m)	148,308	157,985	158,193
Net asset value per ordinary share at period end ($)	8.41	8.69	8.76
Tangible net asset value per ordinary share at period end ($)	7.48	7.81	7.88
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)^3,4	13.6	15.6	15.8
Risk-weighted assets ($m)^3,4	851,743	862,292	838,263
Total capital ratio (%)^3,4	18.6	21.0	21.2
Leverage ratio (%)^3,4	5.5	5.3	5.2
High-quality liquid assets (liquidity value) ($bn)⁴	656.6	659.3	717.0
Liquidity coverage ratio (%)⁴	134	134	138
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions)	19,819	20,223	20,073
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)	19,949	20,315	20,189
Average basic number of $0.50 ordinary shares outstanding (millions)	19,954	20,211	20,183
Dividend per ordinary share (in respect of the period) ($)	0.09	0.07	0.18

1 For these metrics, half-year to 31 December 2021 is calculated on a full-year basis and not a 2H21 basis.

HSBC Holdings plc Interim Report 2022

Group Chief Executive's review

By delivering our growth and transformation plans at pace, HSBC has become a stronger, more international business capable of achieving our best returns in a decade.

4	HSBC Holdings plc Interim Report 2022

"The progress we have made in growing and transforming the business gives us a strong starting point as we enter the current interest rate cycle."

International

HSBC Holdings plc Interim Report 2022

Financial performance

"Serving customers across borders is what we do best. It is how we can best help them to grow, and, we believe, the fastest way to accelerate returns for our shareholders."

Outlook

The revenue outlook has improved further since our full-year 2021 results, despite the uncertain macroeconomic environment.

6	HSBC Holdings plc Interim Report 2022

Transition to net zero

Our people

My colleagues represent the very best of HSBC, and I am proud of all they have done - and are doing - to support our customers, communities and each other.

Noel Quinn

Group Chief Executive

1 August 2022

HSBC Holdings plc Interim Report 2022

Our strategy

We are actively implementing our strategy across the four pillars aligned to our purpose, values and ambition announced in February 2021.

Progress on our 2021 commitments

• focus on our areas of strength;

• digitise at scale to adapt our operating model for the future;

• energise our organisation for growth; and

• support the transition to a net zero global economy.

Shifting capital to areas with the highest returns and growth

Capital allocation and revenue concentration

Asia

(as a % of Group tangible equity)¹

Wealth and Personal Banking

(as a % of Group tangible equity)²

Adjusted fees and insurance revenue

(as a % of total adjusted revenue)³

1 Based on tangible equity of the Group's major legal entities excluding associates, holding companies and consolidation adjustments.

2 WPB tangible equity as a share of tangible equity allocated to the global businesses (excluding Corporate Centre). Excludes holding companies and consolidation adjustments.

4 Medium term is defined as 3 to 4 years from 1 January 2020; long term is defined as 5 to 6 years from 1 January 2020.

8	HSBC Holdings plc Interim Report 2022

Our strategy

Focus on our strengths
In our global businesses

In each of our global businesses, we focus on delivering growth in areas where we are strongest and have opportunities to grow.

Wealth and Personal Banking

Commercial Banking

Global Banking and Markets

HSBC Holdings plc Interim Report 2022

Digitise at scale

Investing in technology

As we increase our efficiency, especially through utilising technology, we continue to focus on keeping our costs stable and offsetting pressures that arise from higher inflation.

Technology spend

% of total adjusted operating expenses

Energise for growth

Empowering and energising our employees is crucial for building a more effective workforce. We have made progress across all the parameters set out in our strategy.

Transition to net zero

10	HSBC Holdings plc Interim Report 2022

How we do business

We conduct our business intent on opening up opportunities to ensure the sustained success of our customers, people and other stakeholders.

Our approach

Our conduct

Our colleagues

Our climate transition

Delivering for our stakeholders

Having a clear purpose and strong values has never been more important. As the world changed over the past two years, we adapted to new ways of working.

HSBC Holdings plc Interim Report 2022

Our stakeholders	How we deliver
Customers	- We have opened over 5,000 bank accounts for Ukrainian refugees in the UK to support them with accessing required financial services. This follows a scheme launched last year to allow Afghan settlers to open bank accounts. HSBC UK fully supports the Homes for Ukraine scheme and is committed to making it as simple as possible for mortgage and home insurance customers to take part. - We provided more flexible payment terms and reduced the time for both supplier credit approvals and access to working capital financing to help customers manage recent supply chain disruptions. - In the UK, we are preparing to support customers amid the rising cost of living pressures from higher inflation. Initiatives include proactively contacting customers who might be at risk of financial difficulty, and creating a new cost of living 'hub' on the public website, with articles, tools and links to third-party support. - We continued to support businesses in their sustainability transition with the launch of a £500m Green SME Fund in the UK and a $5bn Sustainability Fund for the Greater Bay Area, as well as a $1bn Female Entrepreneur Fund across selected markets.
Customers
Employees	- In April 2022, 18,000 colleagues joined our second 'Global Jam', where for over three days colleagues from every region held a multi-language conversation on topics such as our purpose and values, life at HSBC and customer experience. - In some of our Asian markets, which continued to face Covid-19-related restrictions, we supported colleagues with an enhanced well-being offering to support mental and physical needs. Care packages - including food supplies - were distributed to colleagues where local supply chains were strained. - Following positive feedback from colleagues, we continued to adopt hybrid working practices. We are continuing to review and implement more modern flexible working arrangements across all our operating markets to help more colleagues improve their work-life balance, which is linked to improved mental health.
Investors	- We value the ongoing engagement we have with our shareholders and have begun to reflect the Group's approach to new ways of working in conducting our investor programme, offering in-person, virtual and hybrid meetings and events. - We were pleased to be able to offer in-person attendance as well as a video webcast option for our AGM in April and continue to engage constructively with institutional shareholders and ShareAction in developing our climate-related commitments. In April, we also paid the second interim dividend for 2021 of $0.18 per share, and continue to target sustainable dividends with a target payout ratio range of 40% to 55% of reported EPS, while retaining the flexibility to adjust for non-cash significant items. - We look forward to engaging with our Hong Kong retail shareholders at an Informal Shareholder Meeting to be held on Tuesday 2 August 2022.
Communities	- Our Hongkong Bank Foundation donated $12.8m towards Covid-19 relief for vulnerable communities in Hong Kong. - We made donations to UNICEF and the International Committee of the Red Cross to support their emergency response programmes helping those affected by the conflict in Ukraine.
Communities
Regulators and governments	- We proactively engage with regulators and governments to facilitate strong relationships via virtual and in-person meetings, and responses to consultations individually and jointly via the industry bodies.
Regulators and governments
Suppliers	- We invited 500 suppliers to participate in the CDP (previously Carbon Disclosure Project) supply chain programme, which helps us to better understand their carbon emissions and zero carbon ambitions. This initiative supports our ambition to be net zero in our operations and supply chain by 2030.

12	HSBC Holdings plc Interim Report 2022

Financial overview

Executive summary

Delivery against Group financial targets

Return on average tangible equity (annualised) (%) <>

9.9%

(1H21: 9.4%)

Adjusted operating expenses <>

$15.4bn

(1H21: $15.5bn)

Gross RWA reductions

$114bn

CET1 ratio

13.6%

Capital and dividends

Interim dividend per ordinary share for 1H22

$0.09

HSBC Holdings plc Interim Report 2022

Reported results

	Half-year to			Quarter ended
Reported results	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	30 Jun 2022 $m	30 Jun 2021 $m	31 Mar 2022 $m
Net operating income before change in expected credit losses and other credit impairment charges ('revenue')	25,236	25,551	24,001	12,772	12,565	12,464
ECL	(1,090)	719	209	(448)	284	(642)
Net operating income	24,146	26,270	24,210	12,324	12,849	11,822
Total operating expenses	(16,419)	(17,087)	(17,533)	(8,107)	(8,560)	(8,312)
Operating profit/(loss)	7,727	9,183	6,677	4,217	4,289	3,510
Share of profit in associates and joint ventures	1,449	1,656	1,390	793	771	656
Profit before tax	9,176	10,839	8,067	5,010	5,060	4,166
Tax income/(expense)	39	(2,417)	(1,796)	762	(1,206)	(723)
Profit/(loss) after tax	9,215	8,422	6,271	5,772	3,854	3,443

Reported performance - 1H22 vs 1H21

Reported profit

Reported revenue

14	HSBC Holdings plc Interim Report 2022

Reported ECL

Reported operating expenses

Reported share of profit in associates and joint ventures

Tax

Reported profit after tax in 1H22

$9.2bn

(1H21: $8.4bn)

Reported net interest income in 1H22

$14.5bn

Up 10% compared with 1H21

Reported performance - 2Q22 vs 2Q21

Reported profit

Reported profit after tax of $5.8bn in 2Q22 was $1.9bn higher than in 2Q21, and included a $1.8bn gain following the recognition of a deferred tax asset.

Reported profit after tax in 2Q22

$5.8bn

(2Q21: $3.9bn)

Net interest margin in 2Q22

1.35%

Up 9 basis points from 1Q22

HSBC Holdings plc Interim Report 2022

Adjusted results

Our reported results are prepared in accordance with International Financial Reporting Standards ('IFRSs') as detailed in the notes on the interim condensed financial statements on page 110.

To derive adjusted performance, we adjust for:

- the period-on-period effects of foreign currency translation differences; and

- the effect of significant items that distort period-on-period comparisons, which are excluded to improve understanding of the underlying trends in the business.

The results of our global businesses are presented on an adjusted basis, which is consistent with how we manage and assess global business performance.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Revenue	25,690	24,734	23,577	956	4
ECL	(1,090)	675	174	(1,765)	>(100)
Total operating expenses	(15,376)	(15,520)	(15,447)	144	1
Operating profit	9,224	9,889	8,304	(665)	(7)
Share of profit in associates and joint ventures	1,449	1,649	1,377	(200)	(12)
Profit before tax	10,673	11,538	9,681	(865)	(7)

Adjusted performance - 1H22 vs 1H21

Adjusted profit before tax <>

Adjusted revenue <>

Adjusted ECL <>

16	HSBC Holdings plc Interim Report 2022

Adjusted operating expenses <>

Adjusted share of profit in associates and joint ventures<>

Adjusted share of profit from associates and joint ventures of $1.4bn decreased by $0.2bn or 12%, primarily as 1H21 included a higher share of profit from BGF due to the recovery in asset valuations.

Reconciliation of reported to adjusted profit before tax

	Half-year to
	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m
Reported profit before tax	9,176	10,839	8,067
Currency translation	-	(371)	(249)
Significant items:	1,497	1,070	1,863
- customer redress programmes (total)	8	(1)	39
- disposals, acquisitions and investment in new businesses (total)	288	-	-
- fair value movements on financial instruments	220	194	48
- impairment of goodwill and other intangible assets	9	-	587
- restructuring and other related costs (total)	972	918	1,225
- settlements and provisions in connection with legal and regulatory matters	-	-	-
- past service costs of guaranteed minimum pension benefits equalisation	-	-	-
- goodwill impairment (share of profit in associates and joint ventures)	-	-	-
- currency translation on significant items	-	(41)	(36)
Adjusted profit before tax	10,673	11,538	9,681

Balance sheet and capital

Balance sheet strength

Loans and advances to customers as a percentage of customer accounts was 62.3%, which was higher compared with 61.1% at 31 December 2021.

Distributable reserves

Capital position

Liquidity position

HSBC Holdings plc Interim Report 2022

Wealth and Personal Banking

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

28 %

We serve more than 38 million customers from retail customers to ultra high net worth individuals and their families.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	10,922	10,980	10,439	(58)	(1)
ECL	(573)	38	215	(611)	>(100)
Operating expenses	(7,411)	(7,277)	(7,574)	(134)	(2)
Share of profit in associates and JVs	8	10	24	(2)	(20)
Profit before tax	2,946	3,751	3,104	(805)	(21)
RoTE excluding significant items (annualised, YTD) (%)	8.4	17.9	15.2

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Wealth	4,110	4,762	4,137	(652)	(14)
- investment distribution	1,617	1,847	1,573	(230)	(12)
- Global Private Banking	945	905	870	40	4
net interest income	388	310	320	78	25
non-interest income	557	595	550	(38)	(6)
- life insurance manufacturing	1,010	1,437	1,090	(427)	(30)
- asset management	538	573	604	(35)	(6)
Personal Banking	6,656	5,870	5,994	786	13
- net interest income	6,004	5,211	5,299	793	15
- non-interest income	652	659	695	(7)	(1)
Other¹	156	348	308	(192)	(55)
Net operating income²	10,922	10,980	10,439	(58)	(1)

2 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

18	HSBC Holdings plc Interim Report 2022

Financial performance

Adjusted revenue of $10.9bn was $0.1bn or 1% lower, despite adverse movements in market impacts of $1.0bn.

In Wealth, revenue of $4.1bn was down $0.7bn or 14%.

In Personal Banking, revenue of $6.7bn was up $0.8bn or 13%.

Other income fell by $0.2bn, mainly due to lower income allocated from Markets Treasury.

Divisional highlights

$39bn

WPB net new invested assets, which was a 9% increase compared with 1H21.

$22bn

Growth in mortgage book, notably in the UK (up 7%) and Hong Kong (up 5%) since 30 June 2021.

Adjusted profit before tax <>

($bn)

$2.9bn

Adjusted net operating income <>

($bn)

$10.9bn

HSBC Holdings plc Interim Report 2022

Commercial Banking

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

33 %

We support businesses in 53 countries and territories, ranging from small enterprises to large companies operating globally.

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	7,217	6,353	6,556	864	14
ECL	(288)	228	40	(516)	>(100)
Operating expenses	(3,351)	(3,371)	(3,355)	20	1
Share of profit in associates and JVs	-	1	-	(1)	(100)
Profit before tax	3,578	3,211	3,241	367	11
RoTE excluding significant items (annualised, YTD) (%)	12.6	11.1	10.8

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Global Trade and Receivables Finance	1,078	896	984	182	20
Credit and Lending	2,971	2,833	2,995	138	5
Global Liquidity and Cash Management	2,369	1,669	1,779	700	42
Markets products, Insurance and Investments, and Other¹	799	955	798	(156)	(16)
- of which: share of revenue from Markets and Securities Services and Banking products	608	504	514	104	21
Net operating income²	7,217	6,353	6,556	864	14

2 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

20	HSBC Holdings plc Interim Report 2022

Financial performance

Adjusted revenue of $7.2bn was $0.9bn or 14% higher.

Divisional highlights

20%

Increase in adjusted net interest income, notably 51% in GLCM and 33% in GTRF.

12%

Increase in adjusted net fee income, with growth across all products.

Adjusted profit before tax <>

($bn)

$3.6bn

Adjusted net operating income <>

($bn)

$7.2bn

HSBC Holdings plc Interim Report 2022

Global Banking and Markets

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

27 %

Adjusted results <>	Half-year to			1H22 vs 1H21
Adjusted results <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	7,841	7,518	6,878	323	4
ECL	(227)	405	(80)	(632)	>(100)
Operating expenses	(4,735)	(4,724)	(4,831)	(11)	-
Share of profit in associates and JVs	-	-	-	-	-
Profit before tax	2,879	3,199	1,967	(320)	(10)
RoTE excluding significant items (annualised, YTD) (%)	10.9	10.7	8.6

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Markets and Securities Services	4,700	4,257	3,741	443	10
- Securities Services	973	885	969	88	10
- Global Debt Markets	436	683	164	(247)	(36)
- Global Foreign Exchange	2,214	1,618	1,621	596	37
- Equities	616	615	566	1	-
- Securities Financing	468	421	428	47	11
- Credit and funding valuation adjustments	(7)	35	(7)	(42)	>(100)%
Banking	3,399	3,162	3,231	237	7
- Global Trade and Receivables Finance	373	344	347	29	8
- Global Liquidity and Cash Management	1,164	856	919	308	36
- Credit and Lending	1,251	1,261	1,257	(10)	(1)
- Capital Markets and Advisory	443	587	627	(144)	(25)
- Other¹	168	114	81	54	47
GBM Other	(258)	99	(94)	(357)	>(100)%
- Principal Investments	81	235	139	(154)	(66)
- Other²	(339)	(136)	(233)	(203)	>(100)%
Net operating income³	7,841	7,518	6,878	323	4

1 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.

2 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and hyperinflation.

3 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

22	HSBC Holdings plc Interim Report 2022

Financial performance

Adjusted revenue of $7.8bn was $0.3bn or 4% higher.

In MSS, revenue increased by $0.4bn or 10%, driven by strong client activity and robust risk management, despite adverse movements in credit and funding valuation adjustments of $42m.

• In Global Debt Markets, revenue fell by $0.2bn or 36%, reflecting lower primary issuances and reduced client activity due to uncertainty and challenging market conditions.

In Banking, revenue increased by $0.2bn or 7%.

• Capital Markets and Advisory revenue decreased by $0.1bn or 25%, within the context of a significant reduction in the global market fee pool, particularly in equity and debt capital markets.

In GBM Other, Principal Investments revenue fell by $0.2bn, as 1H22 included lower revaluation gains compared with 1H21. This also included a reduction in revenue allocated from Markets Treasury.

Divisional highlights

47%

Percentage of adjusted revenue generated in Asia in 1H22.

36%

Revenue increase in GLCM compared with 1H21.

Adjusted profit before tax <>

($bn)

$2.9bn

Adjusted net operating income <>

($bn)

$7.8bn

HSBC Holdings plc Interim Report 2022

Corporate Centre

Contribution to Group 1H22 adjusted profit before tax<>

% contribution to Group

12 %

Adjusted results<>	Half-year to			1H22 vs 1H21
Adjusted results<>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Net operating income	(290)	(117)	(296)	(173)	>(100)
ECL	(2)	4	(1)	(6)	>(100)
Operating expenses	121	(148)	313	269	>100
Share of profit in associates and JVs	1,441	1,638	1,353	(197)	(12)
Profit before tax	1,270	1,377	1,369	(107)	(8)
RoTE excluding significant items (annualised, YTD) (%)	5.3	5.1	5.6

Financial performance

Adjusted profit before tax of $1.3bn was $0.1bn or 8% lower.

Adjusted operating expenses decreased by $0.3bn due to an increase in costs allocated to our global businesses.

Adjusted share of profit from associates and joint ventures of $1.4bn decreased by $0.2bn, primarily as 1H21 included a higher share of profit from BGF due to the recovery in asset valuations.

Management view of adjusted revenue <>	Half-year to			1H22 vs 1H21
Management view of adjusted revenue <>	30 Jun 2022 $m	30 Jun 2021 $m	31 Dec 2021 $m	$m	%
Central Treasury¹	(28)	(54)	(45)	26	48
Legacy portfolios	4	15	(47)	(11)	(73)
Other²	(266)	(78)	(204)	(188)	>(100)%
Net operating income³	(290)	(117)	(296)	(173)	>(100)%

1 Central Treasury includes adverse valuation differences on issued long-term debt and associated swaps of $28m (1H21: losses of $54m; 2H21: losses of $45m).

3 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

24	HSBC Holdings plc Interim Report 2022

Risk overview

Active risk management helps us to achieve our strategy, serve our customers and communities and grow our business safely.

Managing risk

Political tensions, together with the risk of a global economic slowdown and high inflationary pressures, have resulted in an increasingly fragmented macroeconomic, trade and regulatory environment.

While the financial performance of our operations varied in different geographies, our balance sheet and liquidity remained strong.

Our risk appetite

Key risk appetite metrics

Component	Measure	Risk appetite	1H22
Capital	CET1 ratio - end point basis	≥13.0%	13.6 %
Change in expected credit losses and other credit impairment charges	Change in expected credit losses and other credit impairment charges as a % of advances: Retail (WPB)	≤0.50%	0.08%
	Change in expected credit losses and other credit impairment charges as a % of advances: Wholesale (GBM, CMB)	≤0.45%	0.09%

Stress tests

Our latest solvency stress testing results published by the Bank of England ('BoE') in December 2021 confirmed the Group was sufficiently capitalised.

HSBC Holdings plc Interim Report 2022

Our operations

Geopolitical and macroeconomic risks

We continue to monitor, and seek to manage, the potential implications of all the above developments on our customers and our business.

For further details on our approach to geopolitical and macroeconomic risks, see 'Areas of special interest' on page 59.

26	HSBC Holdings plc Interim Report 2022

Risks related to Covid-19

We continue to monitor the situation closely and, given the significant uncertainties related to the post-pandemic landscape, additional mitigating actions may be required.

For further details on our approach to the risks related to Covid-19, see 'Areas of special interest' on page 60.

Climate risk

For further details on our approach to Climate risk, see 'Areas of special interest' on page 60.

Ibor transition

For further details on our approach to Ibor transition, see 'Areas of special interest' on page 61.

Top and emerging risks

Our current top and emerging risks are summarised on the next page and discussed in more detail on page 124 of the Annual Report and Accounts 2021.

HSBC Holdings plc Interim Report 2022

Risk	Trend	Description
Externally driven
Geopolitical and macroeconomic risks	^	Our operations and portfolios are subject to risks associated with political instability, civil unrest and military conflict, which could lead to disruption of our operations, physical risk to our staff and/or physical damage to our assets. Heightened geopolitical tensions, alongside other factors, have also disrupted supply chains globally. Inflation and rising interest rates may prompt a marked global slowdown that could affect our credit portfolio.
Technology and cybersecurity risk	>	We face a risk of service disruption resulting from technology failures or malicious activity by internal or external threats. In response to the recent geopolitical events, we have further strengthened our monitoring approach. We operate a continuous improvement programme to protect our technology operations, and to counter a fast evolving cyber threat environment.
Evolving regulatory environment risk	>	The compliance risk environment has become more complex, given heightened geopolitical tensions. There has been increased regulatory focus on operational and cyber resilience, crypto-asset-related risks and sanctions, and wider anti-money laundering controls. These, alongside other regulatory priorities, may result in change requirements across the Group in the short to medium term. We continue to monitor regulatory and wider industry developments closely and engage with regulators as appropriate.
Financial crime risk	>	We continue to support our customers against a backdrop of complex geopolitical, socio-economic and technological challenges, including the Russia-Ukraine war. HSBC is monitoring the direct and indirect impacts of the war on the Group, and using its sanctions compliance capabilities to respond to the new sanctions regulations, noting the challenges that arise in implementing the complex, novel and ambiguous aspects of certain of the sanctions.
Ibor transition risk	>	We are primarily exposed to regulatory compliance, legal and resilience risks as part of the transition away from demising Ibor benchmarks, in advance of their cessation dates, to new reference rates. As a result, we continue to take into account the fairness of client outcomes, our compliance with regulatory expectations and the operation of our systems and processes. We continue to support the transition of a small number of contracts in demised Ibors and have begun our customer engagement for demising Ibors, specifically US dollar Libor.
Environmental, social and governance ('ESG') risks	^	We are subject to ESG risks relating to climate change, nature and human rights. This risk has increased owing to the pace and volume of regulatory developments globally and stakeholders placing more emphasis on financial institutions' actions and investment decisions in respect of ESG matters. If we fail to meet evolving regulatory and stakeholder expectations on ESG risk management as a result of any event, behaviour, action or inaction, this may result in financial and non-financial risks for HSBC, including potential reputational consequences.
Digitalisation and technological advances risk	>	Developments in technology and changes in regulations are enabling new entrants to the banking industry, as well as new products and services offered by our existing competitors. This challenges us to continue to innovate to take advantage of new digital capabilities to best serve our customers, and adapt our products to attract and retain customers and employee talent.
Internally driven
Risks associated with workforce capability, capacity and environmental factors with potential impact on growth	>	We are subject to risks associated with employee retention, talent availability, and compliance with employment laws and regulations. The Covid-19 pandemic has also created workforce capacity challenges and impacted employee well-being. Heightened demand for talent in key labour markets and continuing Covid-19-related challenges have led to increased attrition and attraction challenges, and continuing pressure on employees.
Risks arising from the receipt of services from third parties	>	We procure services and goods from a range of third parties. It is critical that we have appropriate risk management policies and processes over the selection and governance of third parties. This includes third parties' supply networks, particularly for key activities that could affect our operational resilience. Any deficiency in the management of risks associated with our third parties could affect our ability to support our customers and meet regulatory expectations.
Model risk	>	Evolving regulatory requirements are driving material changes to models across the banking industry, with a particular focus on capital models. New technologies such as machine learning are driving changes to the model landscape, and the Group's strategic focus on climate risk requires the development of new methods that will effectively model climate-related factors and activities. A key area of focus is ensuring our standards, processes and controls are adequate to identify, measure and manage the resulting model risks.
Data risk	>	We use data to serve our customers and run our operations, often in real-time within digital experiences and processes. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet regulatory requirements could be impacted. We need to ensure that data is kept confidential, and that we comply with the growing number of laws and regulations governing data privacy and the cross-border movement of data.
Change execution risk	>	Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability to achieve our strategic objectives. We must monitor, manage and oversee change execution risk to ensure our change portfolios and initiatives continue to deliver the right outcomes for our customers, people, investors and communities.

^ Risk heightened during the first half of 2022

> Risk remained at the same level as 2021

28	HSBC Holdings plc Interim Report 2022

END

IR FLFIETFILIIF

TIDM	HSBA
Share Price	GBX 1,308.80-1.00%
Market Cap	£233.18bn

Date	1 Aug 2022
Time	16:31:20
Category	Results
ID	5061U

TIDM	HSBA
Share Price	GBX 1,308.80-1.00%
Market Cap	£233.18bn

Date	1 Aug 2022
Time	16:31:20
Category	Results
ID	5061U

t

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Half Year Report - 2022 Interim Report - Part 1

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