Half Year Report - 2023 Interim Report - Part 1

RNS Number : 9024H

HSBC Holdings PLC

01 August 2023

HSBC Holdings plc

Interim Report 2023

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 2023 Interim Report (the "Interim Report") for the half-year ended 30 June 2023.

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 2023

Opening up a world of opportunity

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

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

> Read more on our values on page 4 of our Annual Report and Accounts 2022.

> Read more on our strategy on page 7.

Contents

Overview

2	Highlights
4	Group Chief Executive's review
7	Our strategy
10	ESG overview
11	Financial overview
17	Global businesses
25	Risk overview

Interim management report

28	Financial summary
39	Global businesses
49	Legal entities
57	Reconciliation of alternative performance measures
61	Risk
61	- Key developments in the first half of 2023
61	- Areas of special interest

64	- Credit risk
93	- Treasury risk
103	- Market risk
104	- Insurance manufacturing operations risk
106	Directors' responsibility statement

Interim condensed financial statements

107	Independent review report to HSBC Holdings plc
108	Interim condensed financial statements
115	Notes on the interim condensed financial statements

Additional information

141	Shareholder information
149	Forward-looking statements
150	Certain defined terms
151	Abbreviations

Our global businesses

We serve customers through three global businesses. On pages 17 to 24 we provide an overview of our performance in the first half of 2023 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.

A reminder

The currency we report in is US dollars.

Constant currency performance

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 13.

Cover image: Opening up a world of opportunity

Our cover features Stitt, one of HSBC's two bronze lions. Touching the lion's paw was said to bring good luck, and that tradition continues today. The lions, Stephen and Stitt, designed by British sculptor Henry Poole, were commissioned to celebrate the opening of the newly-rebuilt HSBC building on the Bund in Shanghai in 1923. Stephen and Stitt represent the strength and endurance that is part of our heritage. Loyal and proud, they stand guard outside our offices in Hong Kong, London and Shanghai, and symbolise good fortune and stability.

Performance in 1H23

HSBC is one of the world's leading
international banks.

We have a clear strategy to deliver revenue
and profit growth, enhance customer service
and improve returns to shareholders.

Delivery against our financial targets

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

> For our financial targets, we define medium term as three to four years and long term as five to six years, commencing 1 January 2020.

> Further explanation of performance against Group financial targets can be found on page 11.

Return on average tangible equity (annualised) <>

22.4%

Revised target: Mid-teens for 2023 and 2024, excluding the impact of material acquisitions and disposals.

(Updated from ≥12% from 2023 onwards.)

(1H22: 10.6%)

Target basis operating expenses growth compared with 1H22 <>

4.3%

Target: Growth of approximately 3% compared with 2022. This measure excludes from constant currency operating expenses: notable items, the impact of retranslating the results of hyperinflationary economies at constant currency and the impact of our acquisition of SVB UK and the related investments internationally.

Common equity tier 1 capital ratio

14.7%

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 2022: 14.2%)

Second interim dividend per ordinary share for 1H23

$0.10

Target: Dividend payout ratio of 50% for 2023 and 2024, excluding material notable items.

Strategic performance indicators

Our strategy supports our ambition of being the preferred international financial partner for our clients.

We are committed to building a business for the long term, developing relationships that last.

> Read more on our strategic progress on page 7.

> Read more on our approach to environmental, social and governance matters on page 10.

Commercial Banking net fee income

$2.0bn

Growth of 2% compared with 1H22.

Net new invested assets

$34bn

Generated in 1H23, of which $27bn were in Asia.

Gender diversity

33.6%

Women in senior leadership roles.

(31 December 2022: 33.3%)

Sustainable finance and investment

$255.7bn

Cumulative total provided and facilitated since January 2020.

(31 December 2022: $210.7bn)

Highlights

Financial performance reflected the impact of global interest rate rises on revenue and strong cost and balance sheet discipline. Our strategic approach has now changed from transformation to value creation.

Financial performance (1H23 vs 1H22)

- Profit before tax rose by $12.9bn to $21.7bn. This included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France and a provisional gain of $1.5bn on the acquisition of Silicon Valley Bank UK Limited ('SVB UK'). On a constant currency basis, profit before tax increased by $13.3bn to $21.7bn. Reported profit after tax increased by $9.1bn to $18.1bn.

- Revenue increased by $12.3bn to $36.9bn. The increase was driven by higher net interest income in all of our global businesses due to interest rate rises. It also included the impacts related to the planned sale in France and the acquisition in the UK. On a constant currency basis, revenue rose by $13.2bn to $36.9bn.

- Net interest margin ('NIM') of 1.70% increased by 46 basis points ('bps').

- Expected credit losses and other credit impairment charges ('ECL') of $1.3bn reflected a more stable outlook in most markets, although inflationary pressures remain. The 1H23 charge included $0.3bn relating to the commercial real estate sector in mainland China and charges in Commercial Banking ('CMB') in the UK. The 1H22 charge of $1.1bn reflected heightened economic uncertainty, mainly due to the Russia-Ukraine war and inflationary pressures, and also included $0.3bn relating to the commercial real estate sector in mainland China, partly offset by releases of Covid-19-related allowances.

- Operating expenses of $15.5bn were $0.7bn or 4% lower than in 1H22, primarily due to lower restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 and from a $0.2bn impact from a reversal of historical asset impairments. This was partly offset by higher technology costs, an increase in performance-related pay, severance of $0.2bn in 1H23 and the effects of rising inflation. Target basis operating expenses rose by 4.3%.

- Customer lending balances increased by $36bn since 31 December 2022. On a constant currency basis, lending balances grew by $23bn, mainly due to the reclassification of balances associated with our retail banking operations in France from held for sale during the period, and $7bn of additional balances following our acquisition of SVB UK during 1Q23. These were partly offset by the reclassification of our business in Oman as held for sale, which resulted in a $3bn reduction. Excluding these factors, customer lending fell, reflecting weaker customer demand for wholesale lending, notably in Hong Kong and Europe.

- Customer accounts increased by $25bn since 31 December 2022. On a constant currency basis, customer accounts increased by $3bn, mainly due to the reclassification of balances associated with our retail banking operations in France from held for sale during the period. In addition, our acquisition of SVB UK resulted in growth of $7bn, and in 1H23, we reclassified our business in Oman as held for sale, resulting in a $5bn reduction. Excluding these factors, deposits fell, reflecting reductions in Wealth and Personal Banking ('WPB') and CMB in HSBC UK, as well as in Global Banking and Markets ('GBM').

- Annualised return on average tangible equity ('RoTE') of 22.4% compared with 10.6% in 1H22. Excluding the annualised impacts related to the planned sale in France and the acquisition in the UK, annualised RoTE was 18.5%.

- Common equity tier 1 ('CET1') capital ratio of 14.7% increased by 0.5 percentage points compared with 4Q22, which was driven by capital generation net of the dividend accrual, and included an approximately 0.3 percentage point impact from the reversal of an impairment on the planned sale of our retail banking operations in France and the provisional gain on the acquisition of SVB UK. This was partly offset by increased risk-weighted assets ('RWAs') and the impact of the share buy-back announced with our 1Q23 results in May 2023.

- The Board has approved a second interim dividend of $0.10 per share. We also intend to initiate a further share buy-back of up to $2bn, which we expect to commence shortly and complete within three months.

- From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated. For further details of our adoption of IFRS 17, see page 28.

Financial performance (2Q23 vs 2Q22)

- Reported profit before tax increased by $4.1bn to $8.8bn.

- Revenue rose by $4.5bn to $16.7bn, with growth across all of our global businesses, primarily reflecting interest rate rises. There were good performances in insurance in WPB and in Debt Capital Markets in GBM, which offset reductions in Global Foreign Exchange and Equities.

- NIM of 1.72% increased by 3bps, compared with 1Q23.

- ECL of $0.9bn increased by $0.5bn. ECL in 2Q23 included $0.3bn of charges in the commercial real estate sector in mainland China, and $0.3bn in the UK, mainly in CMB.

- Operating expenses of $7.9bn fell by $0.1bn. This was driven by lower restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 and the reversal of historical asset impairments. This reduction was partly offset by $0.2bn of severance costs incurred in 2Q23, as well as higher technology spend, an increase in our performance-related pay accrual and the effects of rising inflation.

- Customer lending decreased by $9bn compared with 31 March 2023, which included a reduction of $3bn related to a reclassification of our business in Oman to held for sale. The remaining reduction was mainly in GBM in HSBC Bank plc, reflecting client deleveraging and weaker demand as interest rates rose.

- Customer accounts decreased by $18bn compared with 31 March 2023, which included a reduction of $5bn related to the reclassification of our business in Oman to held for sale. The remaining reduction was in GBM in Europe, as corporate customers used deposits to pay down their loans, and in HSBC UK, reflecting higher cost of living and competitive pressures.

Outlook

- Our strategy has enabled us to further strengthen our balance sheet, providing us with a good platform for growth in the current interest rate cycle, while maintaining cost discipline. This has given us the confidence to revise our returns guidance for 2023 and 2024. Based on the current path implied by the market for global policy rates, we are now targeting a RoTE in the mid-teens for 2023 and 2024, which excludes the impact of material acquisitions and disposals.

- Given the current market consensus for global central bank rates, we have raised our 2023 full-year guidance for net interest income to above $35bn. While the interest rate outlook remains positive, we expect continued migration to term deposits as short-term interest rates rise.

- We continue to expect ECL charges of around 40bps of average gross loans in 2023 (including lending balances transferred to held for sale). There remains a degree of uncertainty in the forward economic outlook, particularly in the UK, and we are monitoring risks related to our exposures in mainland China's commercial real estate sector. Over the medium to long term, we continue to use a range of 30bps to 40bps of average loans for planning our ECL charges.

- We remain highly focused on maintaining cost discipline. We continue to target operating expense growth of approximately 3% for 2023, excluding the impact of foreign currency translation differences, notable items and the impact of retranslating the 2022 results of hyperinflationary economies at constant

currency. Our target also excludes the impact of our acquisition of SVB UK, and the related investments internationally, which are expected to add approximately 1% to the Group's operating expenses. In 2Q23, we incurred severance costs of $0.2bn, with the benefits expected to be realised towards the end of 2023 and into 2024.

- We intend to manage the CET1 ratio within our medium term target range of 14% to 14.5%, and we aim to manage this range down in the long term. In addition, our dividend payout ratio is 50% for 2023 and 2024, excluding material notable items. We have announced a second interim dividend of $0.10 per share and intend to initiate a further share buy-back of up to $2bn, which we expect to commence shortly and complete within three months. Further buy-backs for 2023 and beyond will be subject to appropriate capital levels.

Strategic progress

- In March 2023, we acquired SVB UK. This acquisition strengthens our CMB franchise and enhances our ability to serve innovative and fast-growing firms in the technology and life science sectors in the UK, and internationally. In June 2023, we launched HSBC Innovation Banking, which includes SVB UK together with newly formed teams in the US, Hong Kong and Israel. This newly formed proposition will deliver a globally connected, specialised banking proposition to support innovation businesses and their investors.

- During 1Q23, the significant interest rate rises in France resulted in the completion of the planned sale of our retail operations in France becoming less certain, as the capital required to be held by the buyer at completion of the transaction will increase significantly. As a

result we were required to change the accounting classification of our retail banking operations in France to no longer be classified as held for sale. In June, we agreed new terms for the sale of these operations that will involve HSBC retaining a portfolio of home and other loans. The transaction remains subject to information and consultation processes with respective works councils and regulatory approvals, and the parties aim to complete on 1 January 2024. An estimated pre-tax loss of up to $2.2bn is expected to be recognised in the second half of 2023 upon reclassification to held for sale.

- The plan to sell our banking business in Canada remains a key priority, as we reshape the organisation to focus on our international customer base. The transaction is now expected to complete in the first quarter of 2024, subject to regulatory and governmental approval, and we continue to classify these operations as held for sale.

-
We remain committed to consider the payment of a special dividend of $0.21 per share as a priority use of the proceeds from the sale of our banking business in Canada in the first half of 2024. The remaining proceeds will accrue into CET1 capital in consideration for organic growth and investment, and we intend to use any excess capital to supplement share buy-backs.

- We remain focused on investing and growing in our areas of strength, and we have continued to make progress in executing our Wealth strategy, notably in Asia. We attracted net new invested assets of $34bn in the first half of 2023, of which $27bn was from Asia.

ESG highlights

Transition to net zero

- Our net zero transition plan, which we expect to publish later this year, will bring together our strategic approach to net zero, our science-based targets for financed emissions and our operations, and details on how we plan to embed climate considerations into our business processes, policies, risk management and governance. We intend to report annually on our implementation progress in our Annual Report and Accounts.

- In the second half of 2023, we expect to complete assessments of transition plans for remaining customers in scope of our thermal coal phase-out policy. We also expect to complete assessments for major oil and gas, and power and utilities customers globally, as well as other customers in EU and OECD markets in scope of our updated energy policy.

- As part of our ambition to support our customers in their transition to net zero and a sustainable future, we aim to provide and facilitate $750bn to $1tn of sustainable finance and investments by 2030. In 1H23, we provided and facilitated $45bn of sustainable finance and investments, bringing our cumulative amount since 1 January 2020 to $255.7bn.

Build inclusion and resilience

- We have continued to focus on building a workplace for our colleagues that is fit for the future and provides teams with the flexibility and resources to deliver for our customers. More of our colleagues are working in a hybrid way than in 1H22, and in the 2022 Snapshot survey, 71% of colleagues said they have everything they needed to feel equipped for success at work. Flexible working practices are also helping us to attract and retain talented employees, with one-third of new joiners saying it influenced their decision to join HSBC.

- Developing the skills of colleagues plays a pivotal role in achieving our strategic goals and growth ambitions. We have continued to focus on programmes critical to our strategy such as those in wealth, sustainability, and leadership development.

Group Chief Executive's review

Noel Quinn

Group Chief Executive

We have repositioned HSBC over the last three

and a half years to enable it to reach its true potential.

Return on average tangible equity

(annualised) <>

22.4%

(1H22: 10.6%)

Constant currency revenue <>

$36.9bn

(1H22: $23.6bn)

By the time we completed the first phase of our strategy at the end of 2022, the changes we had made were delivering an improved financial performance. Six months into 2023, our financial performance has continued to improve, aided by the interest rate environment. As we move further into the next phase of our strategy focused on value creation, I am optimistic about our ability to continue to deliver strong returns for our investors.

Our purpose of 'opening up a world of opportunity' underpins everything we do for our customers, colleagues and the communities we serve. In the first half of 2023, we continued to deliver on that promise by launching new products and services, and developing our capabilities to meet the international needs of our diverse customer base. From the new international proposition for Wealth and Personal Banking customers launched in March and the continued development of our Global Money and Global Wallet products, to the digitisation of international account opening and the globally connected HSBC Innovation Banking business launched in June, there are many examples of how my colleagues are truly living our purpose.

Many of these achievements contributed to our strong first-half performance, as we saw continued good revenue growth across all our global businesses, supported by higher interest rates. We delivered a strong annualised return on tangible equity of 22.4%, including the reversal of an impairment relating to the planned sale of our retail banking operations in France and a provisional gain on the acquisition of SVB UK, both of which were reported in the first quarter. Excluding them, we achieved an annualised return on tangible equity of 18.5%. Our strategy is working. The Board, my colleagues and our shareholders are all focused on the shared objectives of supporting our customers, driving stronger performance and creating more value for our investors.

The biggest challenge we all face remains the uncertainty within the external environment. High inflation remains a significant concern for many of our customers. Even though headline inflation rates are now falling in most countries, they remain persistently high in some markets. In the UK, we have seen limited signs of stress in the mortgage book, although we are acutely aware of the day-to-day financial challenges that some of our customers face. With more mortgage customers due to roll off fixed-term deals in the next six months, and further rate rises expected, tougher times are ahead. We will continue to communicate regularly with our customers, listen to their concerns, seek to offer them help should they want it and ensure they are aware of the range of products available to them.

Across the global economy, growth remains uneven. China's reopening at the start of the year lifted both its economy and the prospects for global GDP growth in 2023, although weaker recent data underlines that its recovery may be slower than previously expected. Other parts of Asia, such as India and the ASEAN region, are growing robustly, as is the Middle East.

From transformation to value creation

At the end of 2022, we completed the first phase of our strategy. As a result of the work done to transform HSBC, including to reposition our portfolio, create broad-based profit generation, maintain strong cost discipline and introduce a sustainable dividend, we built a strong platform for growth. This work helped to put HSBC on track to achieve a return on tangible equity of 12%+ in 2023.

"As we move further into the next phase of our strategy focused on value creation, I am optimistic about our ability to continue to deliver strong returns for our investors."

In the first half of 2023, our strategic approach has changed from transformation to value creation. While there have been - and will continue to be - opportunities to further simplify HSBC, we have shifted our focus to driving growth, while maintaining strong returns.

First, we have further leveraged our international connectivity. Our ability to connect the world's major trading and investment blocs has always been, and remains, our greatest strength. In the first-half, our wholesale cross-border client business increased by around 50%, with growth across all regions, due mainly to rising interest rates. In Wealth and Personal Banking, we now have 6.3 million international customers, which is up 8% on the same period last year. There was also strong revenue growth in global transaction banking, which was up by 63%. Within global transaction banking, there were good performances in Foreign Exchange and in Global Payments Solutions, due to higher rates. Trade was slightly down in line with global trade volumes, although HSBC was recently named 'Best Bank for Trade Finance' by Euromoney for the second year in a row, while also being named 'Best Bank in Asia'.

Second, we made further progress towards the redeployment of capital from less strategic or low-connectivity businesses into high-growth international opportunities. We are pleased to have agreed revised terms for the sale of our French retail banking operations, which we now expect to complete in early 2024. The sale of our banking operations in Canada also remains on track to complete in early 2024. We have also completed the disposal of our Greek business, and announced the planned exit of Russia, a change to the nature of our presence in Oman, and the wind-down of Wealth and Personal Banking in New Zealand.

At the same time, we are investing in growth in a strategic and targeted way. We have invested further in our Wealth business in Asia. We now have a total of 1,400 digitally enabled wealth planners in our Pinnacle business in mainland China, while we launched Global Private Banking in India in July. In June, following our acquisition of SVB UK, we also launched a new strengthened, globally connected proposition - HSBC Innovation Banking. Through it, we are building similar businesses to the former SVB UK in the US, Hong Kong and Israel, and using our international network and balance sheet strength to offer new opportunities to expand globally to our clients in the technology and life sciences sectors.

Third, we are working to diversify our revenue. A key strategic priority has been to grow fee income by investing in our Wealth business, especially in Asia. We saw the continuing benefit of this in the first-half as we grew net new invested assets by $34bn, of which $27bn were in Asia. Fee income in Commercial Banking, which is another priority area, was also up in the first-half by 6%, while collaboration revenue from referrals between our global businesses also increased by 5%.

Fourth, we have maintained tight cost discipline. Costs of $15.5bn in the first-half were $0.7bn or 4% lower than the same period last year, primarily due to lower restructuring costs following the end of our cost-saving programme at the end of 2022. On the basis of our target to limit cost growth to around 3% in 2023, operating expenses increased by 4% in the first-half, including the expected severance costs booked in the second quarter. We remain committed to disciplined cost management.

Fifth, we have reinvested cost savings in technology. Spending on technology increased by 12.8% in the first-half, and now accounts for almost a quarter of total operating expenses. Delivering faster services, reducing friction and offering more competitive products has been critical to improving the customer experience. For example, we have now migrated over 26,000 business customers in Hong Kong and the UK to our next generation digital trade platform, which is enabling us to future-proof a market-leading business.

Investing in technology is also key to enhancing our capabilities and building the bank of the future. We now have a range of 'test and learn' use cases for generative AI across HSBC, and are in the process of scaling those up. Last month, HSBC became the first bank to join BT's and Toshiba's quantum-secured metro network employing quantum technology for secure transmission of data, which will enable us to evaluate how best to use this technology against future cyber threats. We are also pleased to be working with the Hong Kong Monetary Authority on two pilots to test the e-HKD in a new payments ecosystem and to trial tokenised deposits.

Future growth levers

In the first half of 2023, we continued to build new sources of value creation.

We brought in

$34bn

of net new invested assets in Wealth.

We provided and facilitated

$45bn

of sustainable finance and investment in 1H23.

Finally, we continued to build on our position as an enabler of the net zero transition by supporting our customers' transition plans. In the first-half, we provided and facilitated $45bn of sustainable finance and investments, which consisted of capital markets financing and lending to clients as we continued to work closely with them on their transitions. This included a number of key deals in Asia and the Middle East. We have also continued to help unlock new climate solutions, including through our Climate Tech Venture Capital strategy. HSBC was named 'Best Bank for Sustainable Finance in Asia' by Euromoney for the sixth consecutive year.

Translating into strong financial performance

Our strong first-half featured good broad-based profit generation around the world. There was also higher revenue in our global businesses driven by strong net interest income, supported by continued tight cost control. We achieved an annualised return on tangible equity of 22.4%, or 18.5% excluding the two material notable items reported with our first quarter results.

Profit before tax for the first half of 2023 was $21.7bn, which was an increase of $12.9bn on the first half of 2022. This included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France and a provisional gain of $1.5bn on the acquisition of SVB UK. Profit after tax increased by $9.1bn to $18.1bn.

Revenue increased by $12.3bn to $36.9bn, driven mainly by higher net interest income in all three global businesses due to interest rate rises. It also included gains related to the two aforementioned transactions in the first quarter.

Expected credit losses and other credit impairment charges were $1.3bn, which was a $0.3bn increase on the first half of 2022.

Our CET1 ratio at the end of the first-half was 14.7%. We have announced a second interim dividend of $0.10 per share, further to the $0.10 per share dividend already paid in respect of the first quarter. We are also announcing a second share buy-back of up to $2bn. We continue to expect to have substantial distribution capacity going forward.

Our strong performance in the first half of 2023 and our continued strategic progress mean that we now expect to achieve a return on tangible equity in the mid-teens for 2023 and 2024.

Thank you to my colleagues

Over the last six months, I had the opportunity to spend time with colleagues in France, Hong Kong, mainland China, Mexico, Saudi Arabia, the United Arab Emirates and the UK. I have been constantly impressed by their commitment, dedication and tireless efforts to support our customers - all of which are evident in our many achievements. I am especially grateful to those colleagues who have faced serious challenges so far this year, including the earthquakes in Türkiye in February and, of course, the ongoing cost of living crisis in many markets.

Overall, we have delivered a strong first-half performance and are confident of delivering our revised return on tangible equity target for 2023 and 2024. I am also pleased that we can reward our shareholders with strong capital returns, with substantial further distribution capacity still expected ahead.

There is still much work to do, especially given the many challenges in the global economy, but I am confident about our future as we move further into the next phase of our strategy and focus on opportunities to drive value creation, diversify our revenue and retain tight cost control.

Noel Quinn

Group Chief Executive

1 August 2023

Our strategy

We are implementing our strategy across the four strategic pillars

aligned to our purpose, values and ambition.

Our strategy remains anchored around our four strategic pillars, aligned to our purpose, values and ambition, which are:

- 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 our Annual Report and Accounts 2022, we shared our progress in our transformation journey, which has resulted in improved financial performance and a strong foundation as we look ahead.

Our strong first-half featured broad-based profit generation around the world. There was also higher revenue across our global businesses supported by strong net interest income.

We achieved an annualised return on tangible equity of 22.4%, or 18.5% excluding the annualised impacts related to the planned sale in France and the acquisition in the UK. In our global businesses, Wealth and Personal Banking ('WPB') revenue was up 61% on a constant currency basis, Commercial Banking ('CMB') up 73% and Global Banking and Markets ('GBM') up 14%.

Focus on our strengths

Across the Group, three cross-cutting themes - international connectivity, capital deployment and cost discipline - underpin our strategy upon which our global businesses execute.

Cross-cutting themes

International connectivity

Our strength in international connectivity, including taking advantage of our deep liquidity pools in the UK and Hong Kong, remains our key differentiator. In each of our global businesses, international connectivity is core to who we serve. In our wholesale business, driven mainly by interest rates, cross-border client business increased to approximately $7bn in 1H23, compared with approximately $5bn in 1H22. In addition, across wholesale transaction banking, a cornerstone of our international connectivity, revenue grew by 63%, similarly due to interest rates. Within WPB, international clients remain our most attractive client base, with an average customer providing over double the revenue compared with a domestic customer. In 1H23, we grew our international WPB client base to 6.3 million from 5.8 million customers in 1H22, with new-to-bank international customers increasing by 34%.

Capital deployment

We are repositioning our portfolio by exiting unprofitable, sub-scale or less internationally connected portfolios and investing in growth opportunities. The planned sale of our banking business in Canada, and of our retail banking operations in France, as well as the planned exits of our operations in Russia, and wind-down of our WPB business in New Zealand are all in process. We have also completed the disposal of our branch operations in Greece. In Oman, we are changing the nature of our presence, with the planned merger of our business underway with plans to establish a new branch in its place subject to regulatory approvals.

From an acquisition perspective, we acquired SVB UK in March 2023. This acquisition strengthens our CMB franchise and enhances our ability to serve innovative and fast-growing firms in the technology and life science sectors in the UK, and internationally. We have made significant progress since then, launching HSBC Innovation Banking - a stand-alone entity supported by dedicated bankers across the UK, the US, Israel and Hong Kong, with the purpose of bridging people, products and propositions across the bank.

Within our Asian Wealth business, Pinnacle now has approximately 1,400 personal wealth planners digitally enabled, and has witnessed a positive momentum in business growth in 2Q23. In India, we launched Global Private Banking in July 2023 to serve high net worth and ultra high net worth customers onshore. We have also continued to diversify our business with more than 35% of net new invested assets in Asia originating outside Hong Kong.

Cost discipline

We remain committed to disciplined cost management. Costs of $15.5bn in 1H23 were $0.7bn or 4% lower than the same period last year, primarily due to lower restructuring costs following the end of our cost to achieve programme at the end of 2022. On a 2023 target basis, the Group's operating expense increased by 4.3% in 1H23, including severance costs which accounted for 1.4%.

We continue to use cost savings to increase investment in our efforts to further digitise HSBC. Our spending on technology increased by 12.8% in 1H23 on a target basis, and now accounts for 23% of total operating expenses.

International
customers in WPB

6.3m

Up 8% since 1H22.

Cross-border wholesale
client business

c.$7bn

Up approximately 50% since 1H22.

Wholesale transaction
banking revenue

$13.5bn

Up 63% since 1H22.

Technology spend

+12.8%

vs 1H22.

Focus on our strengths continued

In our global businesses

In each of our global businesses, we continue to focus on areas where we are strongest and have opportunities to grow. We aim to diversify revenue streams with a focus on growing Wealth, fee-income streams and collaborating across businesses.

Wealth and Personal Banking

In WPB, we continued to make progress in executing our wealth, asset management and insurance strategy. Constant currency revenue in 1H23 was $16.2bn, up 61% compared with 1H22. Personal Banking performed strongly, with 57% growth during the same period. We recorded net new invested assets of $34bn, with $27bn coming from Asia.

We continue to develop our Global Money proposition, which is now live in eight markets with over 140 features released so far this year. We also launched our faster, fees-free payments rails for Global Money transfers in Hong Kong and the US, giving customers access to cheaper, faster payments. Global Money won 'Outstanding FX Services Solution' at The Digital Banker's Middle East and Africa Innovation Awards 2023.

Net new invested assets in Asia in 1H23

$27bn

Up 21% since 1H22.

Commercial Banking

We saw strong performance in CMB, with constant currency revenue reaching $12.2bn, a 73% increase compared with 1H22, driven by Global Payments Solutions ('GPS'). Overall fee income, a key area of our focus, rose by 6% to $2.0bn, driven by our GPS and Global Trade and Receivables Finance businesses.

Our digital propositions continue to gain traction. We have migrated over 26,000 customers in Hong Kong and the UK to our next generation trade platform, HSBC Trade Solutions, enabling the digitisation of trade and trade-as-a-service via enhanced API connectivity. Global Wallet, a digital wallet that allows customers to transact across currencies without the need of local accounts, has launched Merchant Box in Hong Kong, a one-stop digital payments solution to help e-commerce merchants manage payments across different platforms. Kinetic, our digital business account for SMEs in the UK, now has onboarded over 66,000 customers.

CMB fee income in 1H23

$2.0bn

Up 6% since 1H22.

Global Banking and Markets

We saw sustained performance in GBM, with constant currency revenue increasing by 14% compared with 1H22, reaching $8.5bn. Collaboration revenue with our other global businesses, which remains a key opportunity for us, increased by 5% to approximately $2.0bn. GBM continues to drive international connectivity across regions, with our Western clients facilitating approximately $1.4bn of client business into Asia and the Middle East, an increase of approximately 60% compared with 1H22.¹

Within our Markets and Securities Services business, we launched AI Markets, a Cloud-hosted global digital service that uses natural language processing to enable institutional investors to generate bespoke financial market analytics, browse the latest market insights and access real-time and historical data. We also went live on SwapConnect, enabling clients to enter into onshore deliverable Chinese yuan interest rate swap deals settled from outside China.

Collaboration revenue between GBM and other global businesses in 1H23

c.$2.0bn

Up 5% since 1H22.

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 from where the client group's global relationship is managed.

Digitise at scale

We are continuing to invest in innovative digital solutions and deploying them rapidly, delivering better banking services for our customers and improving our operational efficiency. In 1H23, approximately $3.5bn or 23% of our overall operating expenses on a target basis were dedicated to technology, up from approximately 21% in 1H22.

We are making digital banking more seamless and efficient for our customers and building digital solutions to enable international customers to take their bank with them wherever they are in the world.

As a result, more of our customers are engaging with us through digital channels. At the end of May 2023, 51% of our WPB customers were active on our mobile services, compared with 45% at the end of May 2022. A total of 48% of WPB sales were also made digitally at the end of May 2023, compared with 40% at the end of May 2022. Within CMB, 82% of our customers were digitally active at the end of May 2023, compared with 76% at the end of May 2022.

To improve our operational efficiency, we are digitising our processes and modernising our systems across the bank. We are using the power of the Cloud to process large volumes of data. Our Cloud adoption rate, which is the percentage of our technology services on the private or public Cloud, increased from 31% at the end of 1H22 to 37% at the end of 1H23.

We are embracing disruptive technologies to help enhance our services, strengthen our cybersecurity, and unlock future innovation. These include artificial intelligence ('AI'), central bank digital currencies, and quantum computing to develop and harness their potential to help reshape banking.

Our award-winning anti-money laundering AI solution is now deployed in five markets, covering over 75% of our customers. We also have a range of 'test and learn' use cases of generative AI, as we explore the potential of this technology.

We are participating in two digital currency pilots with the Hong Kong Monetary Authority. The first will develop a new payments ecosystem to trial the use of eHKD, with the potential to lower transaction costs and reduce fraud. The second will test tokenised deposits with Visa in Asia.

We are leading research into quantum computing for financial services. In 1H23, we became the first bank to join BT's and Toshiba's quantum-secured metro network, employing quantum key distribution to securely connect our headquarters to our data centre using data encryption keys.

Our aim is to deliver world-class digital banking, now and for the future.

Energise for growth

Empowering and energising our colleagues is crucial for inspiring a dynamic culture. We remained focused on creating a diverse and inclusive environment, especially in senior leadership roles. We achieved 33.6% female representation in senior leadership positions by the end of 1H23, and are on track to achieve our target of 35% by 2025.¹

In 2022, we also set a Group-wide ethnicity strategy to better represent the communities we serve. We are making good progress to meet this, with 2.8% of leadership roles in the UK and US held by colleagues of Black heritage in 1H23.

We have strengthened the development programmes offered to our most senior leaders through the continuation of our Enterprise Leadership Programme and the launch of a new range of interventions designed to build the knowledge, skills and networks of our Managing Directors.

We outline how we put our purpose and values into practice in the following 'ESG overview' section.

1 This data excludes Saudi Arabia due to local data restrictions and Canada due to the agreed sale of the banking business.

Transition to net zero

As part of our ambition to support our customers through the transition to net zero and to a sustainable future, we aim to provide and facilitate $750bn to $1tn of sustainable finance and investments by 2030. In 1H23, we provided and facilitated $45bn of sustainable finance and investments, bringing our cumulative amount since 1 January 2020 to $255.7bn.

We also continued to demonstrate progress towards our net zero ambition. In December 2022 we published our updated energy policy, which is now extended to the wider energy sector.

We continue to help unlock new climate solutions, focusing on supporting innovation in critical areas such as green technologies.

We are expanding the number of sectors where we plan to provide, and make progress towards, 2030 on-balance sheet financed emissions targets. These include the shipping, agriculture, commercial real estate and residential real estate sectors, and will be in addition to the carbon-intensive sectors we have already set targets for, as published in our Annual Report and Accounts 2022 in February.

Our aim to support our customers through their own journeys to transition to net zero remains a key area of focus and we continue to work towards it through the facilitation of sustainable finance and investments.

> For further details on our climate ambition, see the following 'ESG overview' section.

ESG overview

We are committed to embedding strong environmental,
social and governance principles in the way we do business.

Our approach

Our approach to ESG is shaped by our purpose and values, and a desire to create sustainable long-term value for our stakeholders. As an international bank with significant breadth and scale, we understand that we can have a significant impact in helping to tackle ESG challenges and realise opportunities. We also recognise the complexity of ESG issues. Our ESG efforts are focused on the areas which align most closely to our strategy, purpose and values, and where we can help make a significant difference: the transition to net zero, building inclusion and resilience, and acting responsibly.

Transition to net zero

We continue to make progress on our net zero ambition of becoming net zero in our operations and supply chain by 2030 and aligning our financed emissions to net zero by 2050, recognising we have a significant role to play in enabling the transition to a net zero global economy.

Our updated thermal coal exposures dating back to 31 December 2020 are expected to be made available for reporting in 2023, although this continues to be dependent on availability and quality of data. We aim to update our baseline facilitated emissions from our capital markets activities for the oil and gas, and power and utilities sectors following the publication of the Partnership for Carbon Accounting Financials ('PCAF') standard for capital markets, which is expected later this year.

In December 2022, we published an updated energy policy covering the broader energy system including upstream oil and gas, oil and gas power generation, hydrogen, renewables and hydropower, nuclear, biomass and energy from waste. We also updated our thermal coal phase-out policy. For further details of our policies, see page 65 of our Annual Report and Accounts 2022. We continue to focus on the implementation of these policies through customer engagement and assessment of their transition plans.

We continue to unlock new climate solutions, focusing on supporting innovation in critical areas such as climate technologies. HSBC Asset Management's Climate Tech Venture Capital strategy has deployed $30m of capital to date including investing in Chargetrip, a European start-up developing electric vehicle routing and range technology. In 2Q23, HSBC Asset Management launched a 'Purpose' share class, designed to align with the corporate social objectives of our customers. The share class focuses on addressing gender, racial and ethnic inequality in our societies.

In the first half of 2023, we undertook an analysis of the agri-food sector in Europe using the draft Taskforce on Nature-related Financial Disclosures' ('TNFD') framework. We aim to use this analysis to inform the next steps in expanding our risk management framework to incorporate nature considerations.

Build inclusion and resilience

We are committed to building an inclusive workplace where the best want to work. We place a strong focus on recruiting and retaining diverse talent to better represent our communities. Data is core to this and we have enabled 91% of our colleagues to disclose their ethnicity, with 58% currently choosing to do so.

We have continued to develop the skills of our colleagues to support the achievement of our strategic priorities. Our Sustainability Academy was launched in 2022 to improve the skills of key groups of colleagues in support of our net zero ambitions. The academy has been strengthened with external partnerships with Imperial College London and the Global Association of Risk Professionals. The Accelerating Wealth Programme has continued to support our business growth ambitions in Asia, by attracting and developing individuals with transferable skills into front-line wealth management roles through an immersive re-skilling programme.

Cost of living pressures have continued to be felt around the world, and we have provided a range of resources for colleagues, including financial guidance and assistance programmes. Our 2022 reward survey showed a nine percentage-point improvement in colleagues believing they are paid fairly for the work they do. While this is encouraging progress, we continue to review our approach to performance and pay to ensure we are able to motivate colleagues in a way that is authentic to our culture and values.

We know that many of our customers around the world are also facing increasing cost of living pressures, and we are committed to helping them. We continue to proactively take steps to help prevent customers from falling into financial difficulty, and work closely with those who could benefit from additional assistance. We have developed a range of initiatives and tools designed to support financial resilience and build the financial capability of our customers.

We drive inclusion for our customers by identifying and addressing barriers to finance and financial markets. We aim to simplify the banking experience by providing tools to help customers manage their finances more easily, as well as provide education and support to help them make the most of their money. We also provide finance to our clients in a way that aims to help them improve their social outcomes. We engage with the communities we operate within through philanthropic giving, disaster relief and volunteering.

Act responsibly

Our purpose-led conduct approach guides us to do the right thing and to focus on the impact we have for our customers and the financial markets in which we operate. It is incorporated into the way we design, approve, market and manage products and services. It complements our purpose and values and, together with more formal policies and the tools we have to do our jobs, provides an enterprise-wide, outcome-focused conduct method.

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 2023 benefited from the impact of interest rate rises while operating expenses continued to reflect ongoing cost discipline, despite inflationary pressures.

Reported profit before tax of $21.7bn increased by $12.9bn compared with 1H22. This included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France, and a provisional gain of $1.5bn on the acquisition of SVB UK in March. The increase in reported profit before tax also reflected revenue growth from the impact of interest rate rises. Lower reported operating expenses mainly reflected reduced restructuring costs following the completion of our cost-saving programme at the end of 2022 and favourable foreign currency translation differences. Meanwhile ECL increased, with 1H23 including charges relating to the commercial real estate sector in mainland China and to CMB in the UK, while 1H22 benefited from releases of Covid-19-related allowances.

Our annualised return on average tangible equity ('RoTE') for 1H23 was 22.4%, which included the annualised impact of our provisional gain on the acquisition of SVB UK and the reversal of an impairment on the planned sale of our retail banking operations in France. After excluding these transactions, annualised RoTE was 18.5%. The annualised RoTE in 1H23 is expected to be higher than in the second half of 2023, due to the impacts of these transactions, as well as other seasonal factors.

At 30 June 2023, the Group's CET1 ratio of 14.7% increased by 0.5 percentage points from 31 December 2022. The Board has announced a second interim dividend of $0.10 per ordinary share.

Delivery against Group financial targets

Return on average tangible equity (annualised) (%)

22.4%

(1H22: 10.6%)

We achieved an annualised RoTE of 22.4%, compared with 10.6% in 1H22. Our 1H23 RoTE annualised the impact of our provisional gain on the acquisition of SVB UK and the reversal of an impairment on the planned sale of our retail banking operations in France. Excluding the impacts related to these transactions, annualised RoTE was 18.5%.

Our strategy has enabled us to further strengthen our balance sheet, providing us with a good platform for growth in the current interest rate cycle, while maintaining cost discipline. This has given us the confidence to revise our returns guidance for 2023 and 2024. Based on the current path implied by the market for global policy rates, we are now targeting a RoTE in the mid-teens for 2023 and 2024, which excludes the impact of material acquisitions and disposals.

Target basis operating expenses growth compared with 1H22 <>

4.3%

(1H23: $15.3bn; 1H22: $14.7bn)

In 2023, the Group is targeting to limit cost growth to approximately 3%, excluding the impact of foreign currency translation differences, notable items and the impact of retranslating the 2022 results of hyperinflationary economies at constant currency. Our target also excludes the impact of our acquisition of SVB UK, and the related investments internationally, which are expected to add approximately 1% to the Group's operating expenses.

On this basis, the Group's operating expenses increased by $0.6bn or 4.3% compared with 1H22.

We announced at our 2022 full-year results that we intend to incur up to $0.3bn severance costs during 2023, with the benefits expected to be realised towards the end of 2023 and into 2024. During 1H23, we incurred severance costs of $0.2bn.

Capital and dividends

CET1 ratio

14.7%

(31 December 2022: 14.2%)

At 30 June 2023, our CET1 ratio was 14.7%, up 0.5 percentage points from 31 December 2022. This was driven by capital generation net of the dividend accrual, and included an approximately 0.3 percentage point impact from the reversal of an impairment on the planned sale of our retail banking operations in France and the provisional gain on the acquisition of SVB UK. This was partly offset by increased RWAs and the impact of the share buy-back announced with our 1Q23 results in May 2023.

We intend to manage the CET1 ratio within our medium term target range of 14% to 14.5%, and we aim to manage this range down in the long term. We intend to continue to manage capital efficiently, returning excess capital to shareholders where appropriate. Our capital distributions remain independent of the reversal of the impairment of our retail banking operations in France and our provisional gain on the acquisition of SVB UK.

Alongside our 1H23 results, the Board has announced a second interim dividend of $0.10 per ordinary share. The total dividend in respect of 1H23 was $0.20 per ordinary share. We also intend to initiate a share buy-back of up to $2bn, which we expect to commence shortly and complete within three months.

Given our current forecast returns trajectory, we are targetting a dividend payout ratio of 50% for 2023 and 2024, excluding material notable items, comprising the impacts of the planned sale of our retail banking operations in France, the agreed sale of our banking business in Canada and the provisional gain following the acquisition of SVB UK. Our dividend payout ratio also excludes the earnings of our Canada business from 30 June 2022 until completion of the agreed sale.

Second interim dividend per ordinary share in respect of 2023

$0.10

Key financial metrics

	Half-year to
	30 Jun	30 Jun
	2023	2022
Reported results
Profit before tax ($m)	21,657	8,780
Profit after tax ($m)	18,071	8,931
Cost efficiency ratio (%)	41.9	65.7
Net interest margin (%)	1.70	1.24
Basic earnings per share ($)	0.86	0.40
Diluted earnings per share ($)	0.86	0.40
Dividend per ordinary share (in respect of the period) ($)	0.20	0.09
Alternative performance measures <>
Constant currency profit before tax ($m)	21,657	8,404
Constant currency cost efficiency ratio (%)	41.9	65.7
Expected credit losses and other credit impairment charges (annualised) as % of average gross loans and advances to customers (%)	0.28	0.21
Expected credit losses and other credit impairment charges (annualised) as % of average gross loans and advances to customers, including held for sale (%)	0.26	0.21
Basic earnings per share excluding material notable items ($)¹	0.70	0.29
Return on average ordinary shareholders' equity (annualised) (%)	20.8	9.9
Return on average tangible equity (annualised) (%)	22.4	10.6
Return on average tangible equity excluding strategic transactions (annualised) (%)²	18.5	10.6
Target basis operating expenses ($m)³	15,319	14,683
	At
	30 Jun	31 Dec
	2023	2022
Balance sheet
Total assets ($m)	3,041,476	2,949,286
Net loans and advances to customers ($m)	959,558	923,561
Customer accounts ($m)	1,595,769	1,570,303
Average interest-earning assets, year to date ($m)	2,162,662	2,143,754
Loans and advances to customers as % of customer accounts (%)	60.1	58.8
Total shareholders' equity ($m)	184,170	177,833
Tangible ordinary shareholders' equity ($m)	153,234	146,927
Net asset value per ordinary share at period end ($)	8.44	8.01
Tangible net asset value per ordinary share at period end ($)	7.84	7.44
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)^4,5	14.7	14.2
Risk-weighted assets ($m)^4,5	859,545	839,720
Total capital ratio (%)^4,5	19.8	19.3
Leverage ratio (%)^4,5	5.8	5.8
High-quality liquid assets (liquidity value, average) ($bn)^5,6	631	647
Liquidity coverage ratio (average) (%)^5,6	132	132
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions)	19,534	19,739
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)	19,679	19,876
Average basic number of $0.50 ordinary shares outstanding (millions)	19,693	19,849

For reconciliations of our reported results to a constant currency basis, including lists of notable items, see page 39. Definitions and calculations of other alternative performance measures are included in our 'Reconciliation of alternative performance measures' on page 57.

1 At 2Q23, earnings per share included the impact of the provisional gain recognised in respect of the acquisition of SVB UK of $0.08 (2Q22: nil); the reversal of the impairment loss related to the planned sale of our retail banking operations in France of $0.08 (2Q22: nil); and the agreed sale of our banking business in Canada of $nil (2Q22: $nil). Additionally, the earnings per share at 2Q22 included the impact of the recognition of certain tax assets of $0.11.

2 Excludes impacts of the reversal of the impairment loss of $1.6bn (net of tax) relating to the planned sale of our retail banking operations in France, which is no longer classified as held for sale, and the provisional gain of $1.5bn recognised in respect of the acquisition of SVB UK, both recognised in 1Q23.

3 Excluding the impact of retranslating prior year costs of hyperinflationary economies at constant currency.

4 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. At 30 June 2023, the IFRS 9 add-back to CET1 capital was immaterial. References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.

5 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.

6 The liquidity coverage ratio is based on the average month-end values over the preceding 12 months.

Basis of presentation

IFRS 17 'Insurance Contracts'

On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'. As required by the standard, the Group applied the requirements retrospectively with comparative data previously published under IFRS 4 'Insurance Contracts' restated from the 1 January 2022 transition date.

For more information, see 'Changes to presentation from 1 January 2023' on page 28.

Changes to our reporting framework

On 1 January 2023, we updated our financial reporting framework. We no longer report 'adjusted' results, which exclude the impact of both foreign currency translation differences and significant items. Instead, we compute constant currency performance by adjusting comparative reported results only for the effects of foreign currency translation differences between the relevant periods.

Constant currency performance

Constant currency performance is computed by adjusting reported results of comparative periods for the effects of foreign currency translation differences, which distort period-on-period comparisons.

We consider constant currency performance to provide useful information for investors by aligning internal and external reporting, and reflecting how management assesses period-on-period performance.

Notable items

We separately disclose 'notable items', which are components of our income statement that management would consider as outside the normal course of business and generally non-recurring in nature.

The tables on pages 39 to 41 and pages 51 to 54 detail the effects of notable items on each of our global business segments and legal entities during 1H23 and 1H22.

Management view of revenue on a constant currency basis

Our global business segment commentary includes tables that provide breakdowns of revenue on a constant currency basis by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.

Reported results

1H23 compared with 1H22 - reported performance

	Half-year to		Variance
Reported results	30 Jun 2023	30 Jun 2022	1H23 vs 1H22		Impact of FX
Reported results	$m	$m	$m	%	%
Net operating income before change in expected credit losses and other credit impairment charges ('revenue')	36,876	24,545	12,331	50	(6)
ECL	(1,345)	(1,087)	(258)	(24)	2
Net operating income	35,531	23,458	12,073	51	(6)
Total operating expenses	(15,457)	(16,127)	670	4	4
Operating profit/(loss)	20,074	7,331	12,743	>100	(11)
Share of profit in associates and joint ventures	1,583	1,449	134	9	(7)
Profit before tax	21,657	8,780	12,877	>100	(11)
Tax income/(expense)	(3,586)	151	(3,737)	>(100)	>(100)
Profit/(loss) after tax	18,071	8,931	9,140	>100	(7)


	Half-year to
	30 Jun 2023	30 Jun 2022
Notable items	$m	$m
Revenue
Disposals, acquisitions and related costs	3,321	(288)
Fair value movements on financial instruments	15	(371)
Restructuring and other related costs	-	68
Currency translation on revenue notable items	-	14
Operating expenses
Disposals, acquisitions and related costs	(118)	-
Restructuring and other related costs	47	(1,040)
Currency translation on operating expenses notable items	-	31

1H23 compared with 1H22 - reported performance continued

Reported profit

Reported profit before tax of $21.7bn was $12.9bn higher than in 1H22. This was primarily driven by an increase in revenue due to continued growth in net interest income, reflecting the impact of interest rate rises. Revenue growth also included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France, and a provisional gain of $1.5bn recognised on the acquisition of SVB UK. Reported operating expenses were lower, mainly reflecting reduced restructuring and other related costs following the completion of our cost-saving programme at the end of 2022.

Reported profit after tax of $18.1bn was $9.1bn higher than in 1H22. This included a higher tax expense, notably as 1H22 included a net $1.8bn gain, mainly on the recognition of a deferred tax asset.

Reported revenue

Reported revenue of $36.9bn was $12.3bn or 50% higher, and included the reversal of an impairment relating to the planned sale of our retail banking operations in France and a provisional gain on the acquisition of SVB UK, as described above.

The increase also reflected the impact of interest rate rises, mainly in Global Payments Solutions ('GPS') in CMB and GBM, and in Personal Banking and Global Private Banking in WPB.

In GBM, revenue increased in Markets and Securities Services ('MSS'), mainly in Global Debt Markets reflecting favourable primary market conditions and a better trading performance, and also in Securities Services and Global Foreign Exchange.

There was a good performance in our insurance business in WPB, while the increase in revenue in Corporate Centre included higher revenue in Central Treasury and lower losses relating to the restructuring of our business in Europe.

These factors were partly offset by lower Credit and Lending revenue in CMB, primarily driven by margin compression, and in GBM, reflecting an enhanced focus on returns and weaker client demand. In MSS in GBM, Equities revenue fell due to lower customer activity. Revenue also reduced in Markets Treasury due to the impact of rising interest rates on our funding costs and flattening yield curves. This revenue is allocated to our global businesses.

Reported ECL

Reported ECL of $1.3bn were $0.3bn or 24% higher. The 1H23 charge included stage 3 charges of $1.1bn. There were charges of $0.3bn related to the commercial real estate sector in mainland China and charges in CMB in the UK. The 1H23 charge reflected a more stable outlook in most markets, although inflationary pressures remain.

In 1H22, ECL included charges of $0.3bn relating to the commercial real estate sector in mainland China, as well as Russia-related exposures. It also included 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.

Reported operating expenses

Reported operating expenses of $15.5bn were $0.7bn or 4% lower, mainly due to a reduction in restructuring and other related costs of $1.1bn following the completion of our cost-saving programme, which concluded at the end of 2022. The reduction also included a $0.2bn impact from the reversal of historical asset impairments, the impact of our continued cost discipline, and favourable foreign currency translation differences between the periods of $0.6bn.

These factors were partly offset by higher technology spend of $0.5bn, an increase in our performance-related pay accrual of $0.2bn and severance payments of $0.2bn. Our operating expenses also rose due to the impact of higher inflation and incremental costs following our acquisition of SVB UK.

Reported share of profit from associates and JVs

Reported share of profit from associates and joint ventures of $1.6bn was $0.1bn or 9% higher, reflecting an increase in the share of profit from Saudi Awwal Bank ('SAB'), formerly The Saudi British Bank, and Bank of Communications Co., Limited ('BoCom').

Tax expense

Tax in 1H23 was a charge of $3.6bn, representing an effective tax rate of 16.6%. The effective tax rate for 1H23 was reduced by 1.9 percentage points by the non-taxable provisional gain on the acquisition of SVB UK and by 2.1 percentage points by the release of provisions for uncertain tax positions. Tax in 1H22 was a credit of $151m. This was mainly due to a $2.1bn credit arising from the recognition of a deferred tax asset on historical tax losses of HSBC Holdings as a result of improved profit forecasts for the UK tax group and a charge of $0.3bn for uncertain tax positions. Excluding these items, the effective tax rate for 1H22 was 18.4%.

Return on average tangible equity

In 1H23, our annualised RoTE was 22.4%. Excluding the impact of the reversal of an impairment relating to the planned sale of our retail banking operations in France and the provisional gain of $1.5bn on the acquisition of SVB UK, annualised RoTE was 18.5%.

Reported profit after tax in 1H23

$18.1bn

(1H22: $8.9bn)

Reported net interest income in 1H23

$18.3bn

Up 36% compared with 1H22.

Reported performance - 2Q23 vs 2Q22

	Quarter ended
Reported results	30 Jun 2023	30 Jun 2022	31 Mar 2023	2Q23 vs 2Q22		Impact of FX
Reported results	$m	$m	$m	$m	%	%
Net operating income before change in expected credit losses and other credit impairment charges ('revenue')	16,705	12,240	20,171	4,465	36	(2)
ECL	(913)	(447)	(432)	(466)	(104)	3
Net operating income	15,792	11,793	19,739	3,999	34	(2)
Total operating expenses	(7,871)	(7,949)	(7,586)	78	1	2
Operating profit/(loss)	7,921	3,844	12,153	4,077	106	(2)
Share of profit in associates and joint ventures	850	792	733	58	7	(6)
Profit before tax	8,771	4,636	12,886	4,135	89	(3)
Tax income/(expense)	(1,726)	863	(1,860)	(2,589)	300
Profit/(loss) after tax	7,045	5,499	11,026	1,546	28


	Quarter ended
	30 Jun 2023	30 Jun 2022	31 Mar 2023
Notable items	$m	$m	$m
Revenue
Disposals, acquisitions and related costs	(241)	(288)	3,562
Fair value movements on financial instruments	-	(171)	15
Restructuring and other related costs	-	(12)	-
Currency translation on revenue notable items	-	23	77
Operating expenses
Disposals, acquisitions and related costs	(57)	-	(61)
Restructuring and other related costs	47	(589)	-
Currency translation on operating expenses notable items	-	1	(2)

Reported profit

Reported profit before tax of $8.8bn was $4.1bn higher than in 2Q22, reflecting an increase in revenue driven by rising interest rates. Growth also reflected the non-recurrence of losses related to the planned restructure of our businesses in Europe.

Reported profit after tax of $7.0bn was $1.5bn higher than in 2Q22. This included a higher tax expense, notably as 2Q22 included a $1.8bn deferred tax gain.

Reported revenue

Reported revenue grew by $4.5bn to $16.7bn. Net interest income increased in all global businesses, mainly as a result of higher interest rates, a good performance in life insurance manufacturing in WPB and increased activity in debt capital markets in GBM.

These increases were partly offset by reductions in revenue in Global Foreign Exchange, compared with a strong 2Q22, and in Equities. There was also a reduction in Markets Treasury revenue from lower net interest income due to the impact of rising interest rates on our funding costs and flattening yield curves. This revenue is allocated to our global businesses.

'Disposals, acquisitions and related costs' in 2Q23 primarily related to fair value losses on the foreign exchange hedging of the proceeds from the agreed sale of our banking business in Canada.

Reported ECL

Reported ECL in 2Q23 of $0.9bn were $0.5bn higher. ECL in 2Q23 included $0.3bn of charges against exposures in the commercial real estate sector in mainland China and charges in the UK in CMB.

Reported operating expenses

Reported operating expenses of $7.9bn were $0.1bn lower, mainly due to the favourable impact of foreign currency translation differences of $0.1bn. The non-recurrence of restructuring and other related costs following the completion of our cost-reduction programme at the end of 2022 and a $0.2bn impact from the reversal of historical asset impairments, together with continued cost discipline, broadly offset increases in technology spend, a higher performance-related pay accrual, increased severance costs and inflationary impacts.

Reported profit after tax in 2Q23

$7.0bn

(2Q22: $5.5bn)

Net interest margin in 2Q23

1.72%

Up 3 basis points from 1Q23.

Constant currency results

1H23 compared with 1H22 - constant currency basis

Results - on a constant currency basis <>	Half-year to		1H23 vs 1H22
Results - on a constant currency basis <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Revenue	36,876	23,647	13,229	56
ECL	(1,345)	(1,074)	(271)	(25)
Total operating expenses	(15,457)	(15,532)	75	-
Operating profit	20,074	7,041	13,033	>100
Share of profit in associates and joint ventures	1,583	1,363	220	16
Profit before tax	21,657	8,404	13,253	>100

Profit before tax of $21.7bn was $13.3bn higher than in 1H22 on a constant currency basis.

Revenue increased by $13.2bn or 56%, and included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France, and a provisional gain of $1.5bn recognised on the acquisition of SVB UK. The increase in revenue was also due to higher net interest income reflecting the impact of global interest rates rises and revenue growth in MSS in GBM, despite a weaker performance in Equities. There was also a good performance from our insurance business in WPB and higher revenue in Corporate Centre.

ECL were $0.3bn higher. In 1H23, ECL included charges relating to the commercial real estate sector in mainland China and stage 3 charges in CMB in the UK. This compared with 1H22 charges, which reflected heightened economic uncertainty mainly due to the Russia-Ukraine war, inflationary pressures and charges related to the commercial real estate sector in mainland China, although it benefited from releases of Covid-19-related allowances.

Operating expenses remained stable, as the non-recurrence of restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 broadly offset other cost growth. The impact of retranslating the prior year results of our operations in hyperinflationary economies at 1H23 average rates of foreign exchange resulted in cost growth of $160m.

Balance sheet and capital

Balance sheet strength

Total assets of $3.0tn were $92bn higher than at 31 December 2022 on a reported basis, and included the favourable impact of foreign currency translation differences of $46bn. On a constant currency basis, total assets increased by $46bn, mainly from an increase in financial investments and higher trading asset balances. In addition, there was growth in loans and advances to customers.

Reported loans and advances to customers of $1.0tn increased by $36bn. On a constant currency basis, loans and advances to customers grew by $23bn including the reclassification of lending balances from 'assets held for sale' relating to the planned sale of our retail banking operations in France and increases following the acquisition of SVB UK. While our near-term outlook on lending growth remains cautious, we expect mid-single-digit percentage annual loan growth in the medium to long term.

Reported customer accounts of $1.6tn increased by $25bn. On a constant currency basis, customer accounts increased by $3bn, which also included the reclassification of balances from held for sale relating to the planned sale of our retail banking operations in France and increases following the acquisition of SVB UK. These increases were partly offset by reductions in deposit balances in HSBC UK.

Loans and advances to customers as a percentage of customer accounts was 60%, compared with 59% at 31 December 2022.

Distributable reserves

The distributable reserves of HSBC Holdings at 30 June 2023 were $25.7bn, compared with $35.2bn at 31 December 2022. The decrease was primarily driven by ordinary dividend payments and additional tier 1 coupon distributions of $7.1bn, a share buy-back programme of $2bn and a reduction in other reserves of $0.4bn. The profits generated of $6.3bn in 1H23 will be reflected in the distributable reserves as at 31 December 2023.

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 2023 was 14.7%, up from 14.2% at 31 December 2022, reflecting an increase in CET1 capital of $7.1bn including the reversal of an impairment on the planned sale of our retail banking operations in France and the provisional gain on the acquisition of SVB UK. This was partly offset by an increase in RWAs of $19.8bn and the impact of the share buy-back announced with our 1Q23 results.

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 2023, the Group's LCR was 132% and we held high-quality liquid assets of $631bn. For further details, see page 99.

Wealth and Personal Banking

We serve around 40 million customers globally,
including over 6 million who are international, from retail
customers to ultra high net worth individuals and their families.

Contribution to Group 1H23

profit before tax <>

To meet our customers' needs, we offer a full suite of products and services across transactional banking, lending and wealth.

WPB continued to make strategic investments in our digital capabilities and colleagues, to expand our Wealth franchise in Asia, and enhance our offering to customers with international needs. Performance benefited from our product diversification, as the rise in interest rates, and growth in lending and wealth deposits, as well as a good performance in our insurance business, offset lower revenue in equities and mutual funds.

Results - on a constant currency basis <>	Half-year to		1H23 vs 1H22
Results - on a constant currency basis <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Net operating income	16,200	10,058	6,142	61
ECL	(502)	(584)	82	14
Operating expenses	(7,141)	(6,995)	(146)	(2)
Share of profit in associates and JVs	35	8	27	>100
Profit before tax	8,592	2,487	6,105	>100
RoTE (annualised)¹ (%)	43.1	11.5
1 RoTE (annualised) in 1H23 included a 10.5 percentage point favourable impact of the reversal of the impairment losses relating to the planned sale of our retail banking operations in France.

Divisional highlights

$34bn

WPB net new invested assets, a decrease of 13% compared with 1H22.

Constant currency profit before tax <> ($bn)

$8.6bn

Half-year to

6.3 million

International customers at 30 June 2023, an increase of 8% compared with 1H22.

Constant currency net operating income <> ($bn)

$16.2bn

Half-year to

> International customers are those who bank in more than one market, those whose address is different from the market we bank them in and customers whose nationality, or country of birth for non-resident Indians and overseas Chinese, is different to the market we bank them in. Customers may be counted more than once when banked in multiple countries. Customer numbers include 1.7 million customers acquired through our purchase of L&T Investment Management.

Management view of revenue <>	Half-year to		1H23 vs 1H22
Management view of revenue <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Wealth	3,921	3,382	539	16
- investment distribution	1,281	1,263	18	1
- Global Private Banking	1,141	941	200	21
net interest income	580	387	193	50
non-interest income	561	554	7	1
- life insurance	875	651	224	34
- asset management	624	527	97	18
Personal Banking	10,217	6,500	3,717	57
- net interest income	9,557	5,858	3,699	63
- non-interest income	660	642	18	3
Other¹	2,062	176	1,886	>100
- of which: reversal of impairment loss relating to the planned sale of our retail banking operations in France	2,034	-	2,034	100
Net operating income²	16,200	10,058	6,142	61

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').

	Half-year to
	30 Jun 2023	30 Jun 2022
Notable items	$m	$m
Revenue
Disposals, acquisitions and related costs	2,034	-
Restructuring and other related costs	-	93
Currency translation on revenue notable items	-	(1)
Operating expenses
Disposals, acquisitions and related costs	(23)	-
Restructuring and other related costs	-	(113)
Currency translation on operating expenses notable items	-	4

Financial performance

Profit before tax of $8.6bn was $6.1bn higher than in 1H22 on a constant currency basis, including a $2.0bn reversal of an impairment relating to the sale of our retail banking operations in France. The growth in profit before tax reflected an increase in revenue of $6.1bn, notably from higher net interest income due to wider margins from rising interest rates, and a fall in ECL of $0.1bn, partly offset by a $0.1bn increase in operating expenses.

Revenue of $16.2bn was $6.1bn or 61% higher on a constant currency basis. This included the impact of a reversal of an impairment relating to the planned sale of our retail banking operations in France included within 'Other'. There was strong growth in Personal Banking net interest income of $3.7bn, due to wider margins from rising interest rates, higher revenue of $0.2bn in life insurance, a rise of $0.2bn in Global Private Banking net interest income and a $0.1bn increase in revenue in asset management. These were partly offset by a reduction in revenue allocated from Corporate Centre of $0.4bn, including from Markets Treasury.

In Wealth, revenue of $3.9bn was $0.5bn or 16% higher.

- Life insurance revenue was $0.2bn or 34% higher.¹ The new business contractual service margin written of $0.7bn in 1H23 was up $0.1bn, mainly in Hong Kong due to the mainland China border reopening and the launch of new products in 1H23.

- Global Private Banking revenue was $0.2bn or 21% higher due to the positive impact of wider margins from rising interest rates on net interest income.

- Asset management revenue was $0.1bn or 18% higher, driven by increased assets under management and positive market movements in the seed investment portfolio. Performance continued to be impacted by market volatility.

In Personal Banking, revenue of $10.2bn was up $3.7bn or 57%.

- Net interest income was $3.7bn or 63% higher due to the benefit of wider margins following interest rate rises and balance sheet growth, excluding the impact of transfers to held for sale. Lending grew in HSBC UK, and in Hong Kong, Mexico and the US. Mortgage lending rose in HSBC UK by $5bn and in Hong Kong by $5bn. Compared with 1H22, unsecured lending increased by $1bn, notably in Mexico by $1bn, and in Hong Kong by $1bn, partly offset by the closure of the John Lewis cards portfolio.

ECL of $0.5bn were $0.1bn lower than in 1H22 on a constant currency basis. The modest reduction was primarily due to higher charges in 1H22 relating to the Russia-Ukraine war. Credit performance in 1H23 remained resilient as delinquencies and write-offs remained broadly stable, despite a significant rise in inflationary pressures.

Operating expenses of $7.1bn were 2% higher on a constant currency basis, reflecting continued investment in Wealth in Asia, higher technology spend and from the impact of higher inflation. These were partly offset by continued cost discipline, the non-recurrence of restructuring and other related costs following the completion of our cost-saving programme at the end of 2022, and a $0.1bn reversal related to historical asset impairments.

1.From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Under IFRS 17, the future profits from new business are capitalised in the contractual service margin, and not recognised immediately in the income statement, as was the case for the value of new business measure under IFRS 4.

Commercial Banking

We support businesses in 55 countries and territories,
ranging from small enterprises to large corporates operating globally.

Contribution to Group 1H23

profit before tax

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

In the first half of 2023, CMB acquired SVB UK, demonstrating our continued commitment to the UK economy.

The subsequent launch of HSBC Innovation Banking has strengthened our Commercial Banking franchise by enhancing our ability to serve innovative and fast-growing firms in the innovation ecosystem with an international proposition for businesses in the technology and life science sectors.

CMB delivered a strong revenue performance in 1H23, reflecting interest rate rises and growth in collaboration revenue with GBM, while ECL and operating expenses both increased.

Results - on a constant currency basis <>	Half-year to		1H23 vs 1H22
Results - on a constant currency basis <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Net operating income	12,216	7,055	5,161	73
ECL	(704)	(278)	(426)	>(100)
Operating expenses	(3,572)	(3,345)	(227)	(7)
Share of profit in associates and JVs	(1)	-	(1)	-
Profit before tax	7,939	3,432	4,507	>100
RoTE (annualised)¹ (%)	28.8	12.2
1 RoTE (annualised) in 1H23 included a 6.2 percentage point favourable impact of the provisional gain on the acquisition of SVB UK.

Divisional highlights

154%

Increase in GPS revenue.

Constant currency profit before tax <>

($bn)

$7.9bn

Half-year to

11%

Increase in collaboration income from the sale of products to CMB clients.

Constant currency net operating income <>

($bn)

$12.2bn

Half-year to

Management view of revenue <>	Half-year to		1H23 vs 1H22
Management view of revenue <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Global Trade and Receivables Finance	1,026	1,053	(27)	(3)
Credit and Lending	2,745	2,908	(163)	(6)
Global Payments Solutions	5,967	2,352	3,615	>100
GBM products, Insurance and Investments, and Other¹	2,478	742	1,736	>100
- of which: share of revenue from Markets and Securities Services and Banking products	658	592	66	11
- of which: provisional gain on the acquisition of Silicon Valley Bank UK Limited	1,507	-	1,507	100
Net operating income²	12,216	7,055	5,161	73

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 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').

	Half-year to
	30 Jun 2023	30 Jun 2022
Notable items	$m	$m
Revenue
Disposals, acquisitions and related costs	1,507	-
Currency translation on revenue notable items	-	(1)
Operating expenses
Disposals, acquisitions and related costs	(15)	-
Restructuring and other related costs	29	(66)
Currency translation on operating expenses notable items	-	2

Financial performance

Profit before tax of $7.9bn was $4.5bn higher than in 1H22 on a constant currency basis, primarily driven by an increase in revenue in all of our main legal entities. This reflected a $3.5bn increase in net interest income in Global Payments Solutions ('GPS'). It also included a provisional gain of $1.5bn from HSBC UK's acquisition of SVB UK. These increases were partly offset by a higher ECL charge and growth in operating expenses.

Revenue of $12.2bn was $5.2bn or 73% higher on a constant currency basis:

- In GPS, revenue rose by $3.6bn, with growth in all main legal entities, reflecting wider margins from interest rate rises and business actions, while average balances decreased marginally. There was also a 9% increase in fee income, notably in cards and payments, with growth in most of our main legal entities, mainly in the UK and Asia.

- In Global Trade and Receivables Finance ('GTRF'), revenue was down 3%, driven by lower balances reflecting the softer trade cycle, notably in our main legal entity in Asia. This was partly offset by growth in HSBC UK from higher average balances and improved margins. Fee income was broadly stable.

- In Credit and Lending, revenue decreased by $0.2bn or 6%, primarily in our legal entities in Europe and Asia due to lower balances as rising interest rates softened demand, and from higher funding costs.

- In GBM products, Insurance and Investments, and Other, revenue increased by $1.7bn, reflecting the provisional gain of $1.5bn on the acquisition of SVB UK, and an 11% increase in collaboration revenue from GBM products, notably Foreign Exchange. These increases were partly offset by a fall in Markets Treasury revenue and the adverse impacts of hyperinflation accounting, which are allocated to the global businesses.

ECL of $0.7bn were $0.4bn higher than in 1H22 on a constant currency basis. The increase was mainly due to releases in 1H22 of our remaining Covid-19-related allowances, and from higher charges in 1H23, mainly in the UK. The 1H23 period included charges of $0.2bn relating to the commercial real estate sector in mainland China, compared with charges of $0.2bn in 1H22.

Operating expenses of $3.6bn were $0.2bn higher on a constant currency basis, largely driven by an increase in the performance-related pay accrual, incremental costs of $0.1bn following the acquisition of SVB UK, investment in technology and inflationary impacts. These increases were partly mitigated by the impact of our continued cost discipline around hiring and strategic cost-saving initiatives.

Global Banking and Markets

We support multinational corporates, financial institutions and institutional
clients, as well as public sector and government bodies.

Contribution to Group 1H23
profit before tax<>

We are a leader 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 delivered a strong performance in 1H23, achieving a RoTE of 14.2%. We grew revenue by 14%, while maintaining cost discipline, even as we continued to invest in technology and people to improve operating resilience and support our clients. Revenue growth was driven by higher interest rates and good client activity. We also had a reduction in ECL, reflecting a stable credit performance.

Results - on a constant currency basis <>	Half-year to		1H23 vs 1H22
Results - on a constant currency basis <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Net operating income	8,501	7,459	1,042	14
ECL	(136)	(210)	74	35
Operating expenses	(4,785)	(4,557)	(228)	(5)
Share of profit in associates and JVs	-	-	-	-
Profit before tax	3,580	2,692	888	33
RoTE (annualised) (%)	14.2	11.5

Divisional highlights

14.2%

RoTE in 1H23, up 2.7 percentage points compared with 1H22.

Constant currency profit before tax <>

($bn)

$3.6bn

Half-year to

111%

Increase in GPS revenue.

Constant currency net operating income <>

($bn)

$8.5bn

Half-year to

Management view of revenue <>	Half-year to		1H23 vs 1H22
Management view of revenue <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Markets and Securities Services	4,763	4,658	105	2
- Securities Services	1,220	933	287	31
- Global Debt Markets	588	423	165	39
- Global Foreign Exchange	2,225	2,138	87	4
- Equities	236	594	(358)	(60)
- Securities Financing	513	458	55	12
- Credit and funding valuation adjustments	(19)	112	(131)	>(100)
Banking	4,273	3,097	1,176	38
- Global Trade and Receivables Finance	341	333	8	2
- Global Payments Solutions	2,197	1,043	1,154	>100
- Credit and Lending	987	1,170	(183)	(16)
- Capital Markets and Advisory	558	424	134	32
- Other¹	190	127	63	50
GBM Other	(535)	(296)	(239)	(81)
- Principal Investments	13	78	(65)	(83)
- Other²	(548)	(374)	(174)	(47)
Net operating income³	8,501	7,459	1,042	14

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').

	Half-year to
	30 Jun 2023	30 Jun 2022
Notable items	$m	$m
Revenue
Restructuring and other related costs	-	(26)
Currency translation on revenue notable items	-	-
Operating expenses
Disposals, acquisitions and related costs	3	-
Restructuring and other related costs	-	(87)
Currency translation on operating expenses notable items	-	3

Financial performance

Profit before tax of $3.6bn was $0.9bn or 33% higher than in 1H22 on a constant currency basis. This was driven by an increase in revenue of $1.0bn or 14%, notably from higher net interest income and a lower ECL charge compared with 1H22. Operating expenses increased by $0.2bn.

Revenue of $8.5bn was $1.0bn or 14% higher on a constant currency basis.

In Markets and Securities Services, revenue increased by $0.1bn or 2%, despite adverse movements in credit and funding valuation adjustments of $0.1bn which included methodology changes.

- In Securities Services, revenue grew by $0.3bn or 31% due to higher net interest income as global interest rates rose.

- In Global Debt Markets, revenue increased by $0.2bn or 39% from more favourable primary market conditions, and due to the reopening of mainland China's borders, and a better trading performance. The 1H22 period was impacted by lower primary activity and client flow due to uncertainty and challenging market conditions.

- In Global Foreign Exchange, revenue growth of $0.1bn or 4% reflected strong client activity and trading performance due to market-wide volatility, and the macroeconomic impacts from rising inflation and increasing interest rates.

- In Securities Financing, revenue increased by $0.1bn or 12% due to strong prime trading performance and from the reopening of mainland China's borders.

- In Equities, revenue fell by $0.4bn or 60% in the context of a strong 1H22, and due to lower client activity as a result of reduced market volatility.

In Banking, revenue increased by $1.2bn or 38%.

- In GPS, revenue increased by $1.2bn from higher global interest rates.

- Capital Markets and Advisory revenue increased by $0.1bn or 32%. Investment banking fees were stable, despite a reduction in the global market fee pool, due to an increase in capital markets activity. Issuer Services revenue also increased due to higher interest rates.

- Credit and Lending revenue decreased by $0.2bn or 16%, due to weaker client demand and an enhanced focus on returns.

In GBM Other, Principal Investments revenue declined by $0.1bn, as 1H23 included lower revaluation gains compared with 1H22. There was also a reduction in revenue from Markets Treasury and from adverse impacts of hyperinflationary accounting, which are allocated to the global businesses.

ECL were $0.1bn, compared with charges of $0.2bn in 1H22 on a constant currency basis, reflecting a stable credit performance.

Operating expenses of $4.8bn increased by $0.2bn or 5% on a constant currency basis, due to the impact of higher inflation, partly offset by the impact of our cost-saving initiatives.

Corporate Centre

Contribution to Group 1H23 profit before tax <>

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 1H23 primarily reflected the non-recurrence of adverse fair value movements on financial instruments, restructuring of our business in Europe, including losses on the completed sale of our branch operations in Greece, planned sale of our operations in Russia, and the non-recurrence of restructuring and other related costs following the completion of our cost-saving programme at the end of 2022. In addition, our share of profit from associates and joint ventures increased.

Results - on a constant currency basis <>	Half-year to		1H23 vs 1H22
Results - on a constant currency basis <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Net operating income	(41)	(925)	884	96
ECL	(3)	(2)	(1)	(50)
Operating expenses	41	(635)	676	>100
Share of profit in associates and JVs	1,549	1,355	194	14
Profit before tax	1,546	(207)	1,753	>100
RoTE (annualised) (%)	8.0	7.3

Divisional highlights

Constant currency profit before tax <>

($bn)

$1.5bn

Half-year to

Constant currency net operating income <>

($m)

$(41)m

Half-year to

Management view of revenue <>	Half-year to		1H23 vs 1H22
Management view of revenue <>	30 Jun 2023 $m	30 Jun 2022 $m	$m	%
Central Treasury¹	81	(378)	459	>100
Legacy portfolios	(11)	6	(17)	>(100)
Other^2,3	(111)	(553)	442	80
Net operating income⁴	(41)	(925)	884	96

1 Central Treasury comprises valuation differences on issued long-term debt and associated swaps and fair value movements on financial instruments.

2 Other comprises consolidation adjustments, funding charges on property and technology assets, revaluation gains and losses on investment properties and property disposals, gains and losses on certain planned business disposals, and other revenue items not allocated to global businesses.

3 Revenue from Markets Treasury, HSBC Holdings net interest expense and 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 1H23 was $450m (1H22: $822m; 2H22: $624m).

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

	Half-year to
	30 Jun 2023	30 Jun 2022
Notable items	$m	$m
Revenue
Disposals, acquisitions and related costs	(220)	(288)
Fair value movements on financial instruments	15	(371)
Restructuring and other related costs	-	1
Currency translation on revenue notable items	-	16
Operating expenses
Disposals, acquisitions and related costs	(83)	-
Restructuring and other related costs	18	(774)
Currency translation on operating expenses notable items	-	27

Financial performance

Profit before tax of $1.5bn compared with a loss before tax of $0.2bn in 1H22, on a constant currency basis. This increase primarily reflected higher revenue and lower restructuring and other related costs, together with an increase in the share of profit from associates and joint ventures.

Revenue was $0.9bn or 96% higher on a constant currency basis. This reflected the non-recurrence of adverse fair value movements on financial instruments, favourable valuation differences on long-term debt and associated swaps, and valuation gains on structural hedging. In addition, the increase reflected the impacts of the restructuring of our business in Europe, including the non-recurrence of 1H22 losses associated with the completed sale of our branch operations in Greece and lower losses related to the planned disposal of our operations in Russia. These were partly offset by fair value losses in 1H23 of $0.3bn relating to the foreign exchange hedging of the expected proceeds from the agreed sale of our banking business in Canada.

Operating expenses decreased by $0.7bn on a constant currency basis, primarily driven by the non-recurrence of restructuring and other related costs following the completion of our cost-saving programme at the end of 2022, partly offset by costs related to the planned disposals of our retail banking operation in France and our banking business in Canada.

Share of profit from associates and joint ventures of $1.5bn rose by $0.2bn or 14% on a constant currency basis, primarily driven by increases in the share of profit from SAB and BoCom.

Risk overview

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

Managing risk

The economic outlook improved in most markets during the first half of 2023, although there remained key economic and regulatory risks. While the Russia-Ukraine war has continued to have far-reaching geopolitical implications, the global economy has adapted to the resulting imposition of significant sanctions and trade restrictions. In particular, European countries have diversified their energy sources to reduce dependence on Russian energy supplies.

However, 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 volatility in energy prices.

The relationship between China and several countries, including the US and the UK, remains complex. Efforts across a variety of sectors have been undertaken to decrease vulnerabilities to geopolitical shocks through de-risking supply chains. The US, the UK, the EU and other countries have imposed various sanctions and trade restrictions on Chinese persons and companies. In response, China has imposed sanctions and introduced new laws and trade restrictions that could impact the Group and its customers. Further sanctions or counter-sanctions, whether in connection with Russia or China, may affect the Group and its customers by creating regulatory, reputational and market risks.

Central banks in both developed and emerging markets continued to tighten monetary policy in the first half of 2023, and with further tightening expected in the second half. While accumulated policy tightening has increased the risks of recession and financial instability, and even though inflation has started to fall in most developed markets, central banks are expected to sustain higher interest rates to address persistent underlying inflation pressures through to mid-2024.

Fiscal policies are likely to remain relatively generous in both developed and emerging markets, as demand increases for public spending on items including social welfare, defence and decarbonisation initiatives. Against a backdrop of slower economic growth, volatile energy prices and high interest rates, this could increase the strains on highly indebted sovereigns, corporates and households in both emerging and developed markets.

Key risk appetite metrics
Component	Measure	Risk appetite	1H23
Capital	CET1 ratio - end point basis	≥13.0%	14.7 %
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%	0.23%
	Change in expected credit losses and other credit impairment charges as a % of advances: Wholesale (GBM, CMB)	≤0.45%	0.46%

The mainland China commercial real estate market showed signs of recovery and stabilisation in early 2023, but recent market data remains mixed, suggesting both an uncertain and protracted recovery. Chinese government policy measures introduced in late 2022 have resulted in improved financial support for onshore borrowers, although offshore financial market conditions remain challenged with a continued shortage of liquidity. Corporates operating in this sector are likely to face continued challenges and the risk of further credit deterioration.

We continue to closely monitor the impact of the increasing cost of living on our retail customers. Our primary concern is to ensure that we offer the right support to our customers in line with regulatory, government and wider stakeholder expectations. As part of the ongoing support to our retail mortgage customers, specifically in the UK, we have accepted and implemented the government's commitments outlined in the Mortgage Charter, released in June 2023, which will help provide additional assistance options to customers that may need help. For further details in relation to the full range of support available to our UK customers, see www.hsbc.co.uk.

We are engaging closely with our key regulators to help ensure we continue to meet their expectations of financial institutions' activities during times of market volatility.

For IFRS 9 'Financial Instruments', our approach to macroeconomic scenarios remained unchanged in the second quarter, but the shift in UK interest rate expectations resulted in updates to key scenario variables.

In addition, management adjustments to ECL were applied to reflect persisting uncertainty in certain sectors, driven by inflation, interest rate volatility and other macroeconomic risks, which were not fully captured by our models.

We continue to monitor, and seek to manage, the potential implications of all the above developments on our customers and our business. While the financial performance of our operations varied in different geographies, our balance sheet and liquidity remained strong.

> For further details on our approach to geopolitical and macroeconomic risks, see 'Areas of special interest' on page 61.

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

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.

At 30 June 2023, our CET1 ratio and retail ECL charges were within their defined risk appetite thresholds. Wholesale ECL charges were outside of appetite, reflecting the default of several mainland China commercial real estate developer clients and a number of UK borrowers. During the first half of 2023, we enhanced the coverage of interest rate risk in the banking book within the Group's appetite statement.

Managing risk continued

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 a crisis. 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.

On 12 July 2023 the Bank of England published the Financial Stability Report, which sets out the view of its Financial Policy Committee on the UK financial system. This report incorporates the results from the 2022 annual cyclical scenario stress test of the UK banking system. The stress scenario explored the potential impacts of a global economic contraction, persistently higher inflation and interest rates in advanced economies with materially increased unemployment, and a sharp fall in asset prices. The 2022 annual cyclical scenario outcomes will be used by the Bank of England as a direct input for setting stress capital buffers.

The Bank of England judged that this 2022 annual cyclical scenario stress test did not reveal any capital inadequacies for HSBC given its balance sheet as of 30 June 2022.

Under this stress scenario, the Bank of England's results indicated that HSBC Holdings is sufficiently capitalised, with the Group's CET1 capital ratio on an IFRS 9 transitional basis projected to fall to a low point of 10.7%, which is above the Group's CET1 reference rate of 7.0%. On an IFRS 9 non-transitional basis the Group's CET1 capital ratio is projected to reach a low point of 9.9%, which is above its IFRS 9 non-transitional CET1 reference rate of 6.2%.

For the 2022 annual cyclical scenario, HSBC was asked to submit results for HSBC UK, our ring-fenced bank, on a stand-alone basis for the first time. The stand-alone results also showed that HSBC UK is sufficiently capitalised, indicating that its CET1 capital ratio on an IFRS 9 transitional basis would fall to a low point of 10.1%, above its CET1 reference rate of 6.2%. On an IFRS 9 non-transitional basis, HSBC UK's CET1 capital ratio is projected to reach a low point of 8.9%, which is above its IFRS 9 non-transitional CET1 reference rate of 6.4%.

Both the Group's and HSBC UK's results incorporated strategic management actions. In practice, under such adverse economic circumstances, the Group would consider a variety of management actions depending on the prevailing circumstances at the time.

Climate stress tests

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 help improve our understanding of our risk exposures for risk management and business decision making.

In the second half of 2022, we ran an internal climate scenario analysis to help identify challenges and opportunities to our net zero strategy, and risks posed to our business model by transition and physical risk, as well as to inform capital planning and risk appetite. The internal climate scenario analysis outcomes were used to test our capital adequacy under the internal capital adequacy assessment process, and management concluded that the Group remains adequately capitalised.

In the second half of 2023, we will run a new internal climate scenario analysis with improved models and expanded scenarios for internal use as part of our strategic planning, as well as to respond to climate stress tests for regulators such as those from the Hong Kong Monetary Authority and Central Bank of the United Arab Emirates.

> For further details of our approach to climate risk stress testing, see 'Insights from scenario analysis' on page 67 of our Annual Report and Accounts 2022.

Climate risk

Climate risk relates to the financial and non-financial impacts that may arise as a result of climate change and the move to a greener economy. Climate risk can impact us either directly or through our relationships with our clients. These include the potential risks arising as a result of our net zero ambition, which could lead to reputational concerns, and potential legal and/or regulatory action if we are perceived to mislead stakeholders on our business activities or if we fail to achieve our stated net zero targets. Our most material exposure to climate risk relates to corporate client financing activities and retail mortgages within our banking portfolio. We also have significant responsibilities in relation to asset ownership by our insurance business, employee pension plans and asset management business.

We seek to manage climate risk across all our businesses in line with our Group-wide risk management framework, and are incorporating climate considerations within our existing risk types.

> For further details of our approach to climate risk management, see 'Climate risk' on page 221 of our Annual Report and Accounts 2022.

> For further details of our TCFD disclosures, see the 'ESG review' on page 44 of our Annual Report and Accounts 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, legal and regulatory consequences. In our approach to defending against these threats, we invest in business and technical controls to help us detect, manage and recover from issues in a timely manner.

We continue 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.

We continue to make progress with the implementation of our business and risk transformation plans. We seek to manage change execution risk so we can prioritise, manage and deliver change initiatives effectively and safely, and at the scale, complexity and pace required.

> For further details on our risk management framework and risks associated with our banking and insurance manufacturing operations, see pages 133 and 142 of the Annual Report and Accounts 2022, respectively.

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.

> For further details on our top and emerging risks see pages 135 to 141 of the Annual Report and Accounts 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. While global supply chain disruptions have abated, geopolitical tensions remain high and global interest rates and the uncertain economic outlook for China are nevertheless prompting a global slowdown that may affect our credit portfolio.
Technology and cybersecurity risk	→	We face a risk of service disruption or loss of data resulting from technology failures or malicious activities by internal or external threats. We continue to monitor ongoing geopolitical events and changes to the threat landscape. We operate a continuous improvement programme to help protect our technology operations and to counter a fast-evolving cyber threat environment.
Evolving regulatory environment risk	↑	The regulatory and compliance risk environment is becoming increasingly complex, in part driven by heightened geopolitical tensions. Regulatory scrutiny of financial institutions following recent banking failures, 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, engaging with regulators as appropriate.
Financial crime risk	↑	We are exposed to financial crime risk from our customers, staff and third parties engaging in criminal activity. The financial crime risk environment continues to evolve, due to increasingly complex geopolitical challenges, the macroeconomic outlook, evolving sanctions regulations, rapid technological developments, an increasing number of national data privacy requirements and the increasing sophistication of fraud. As a result, we will continue to face the possibility of regulatory enforcement and reputational risk.
Ibor transition risk	↓	We remain exposed to regulatory compliance, legal and resilience risks as contracts transition away from the remaining demising Ibor benchmarks to new reference rates. We continue to consider the fairness of client outcomes, our compliance with regulatory expectations and the operation of our systems and processes. The key risks have diminished as the majority of contracts in the remaining demising Ibors, specifically US dollar Libor, have been successfully transitioned.
Environmental, social and governance ('ESG') risks	↑	We are subject to ESG risks relating to climate change, nature and human rights. These risks have increased owing to the pace and volume of regulatory developments globally, and due to stakeholders placing more emphasis on financial institutions' actions and investment decisions in respect of ESG matters. Failure to meet these evolving expectations may result in financial and non-financial costs, including adverse reputational consequences.
Digitalisation and technological advances	↑	Developments in technology and changes in regulations have enabled new entrants to the banking industry, and new products and services offered by competitors. This challenges us to continue to innovate with new digital capabilities to best serve our customers by adapting our products, and to attract and retain customers and colleagues. Along with opportunities, new technology can introduce risks. We continue to ensure these are understood and managed with appropriate controls.
Internally driven
Risks associated with workforce capability, capacity and environmental factors with potential impact on growth	→	Our businesses, functions and geographies are exposed to risks associated with employee retention and talent availability, and compliance with employment laws and regulations. While high employee attrition has eased generally, some markets continue to experience heightened inflation, turnover and labour market difficulties. We monitor hiring activities and levels of employee attrition, and each business and function has workforce plans in place to aim to ensure effective workforce forecasting to meet business demands.
Risks arising from the receipt of services from third parties	→	We procure goods and services from a range of third parties. It is critical that we have appropriate risk management policies and processes to select and govern third parties, including 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	↑	Model risk arises whenever business decision making includes reliance on models. We use models in both financial and non-financial contexts, as well as in a range of business applications. Evolving regulatory requirements are driving material changes to the way model risk is managed across the banking industry, with particular focus on capital models. New technologies including generative artificial intelligence ('AI') and large language models utilising AI are driving a need for enhanced model risk controls.
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 non-public data is kept confidential, and that we comply with the growing number of regulations that govern data privacy and 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 aim to 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 2023 Ä Risk decreased during the first half of 2023 → Risk remained at the same level as 2022

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END

IR FIFLTTTILIIV

TIDM	HSBA
Share Price	1,578.60p0.95%
Market Cap	£281.24bn

Date	1 Aug 2023
Time	16:30:01
Category	Results
ID	9024H

TIDM	HSBA
Share Price	1,578.60p0.95%
Market Cap	£281.24bn

Date	1 Aug 2023
Time	16:30:01
Category	Results
ID	9024H

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Half Year Report - 2023 Interim Report - Part 1