Additional Financial Information - Part 2

Standard Chartered PLC - Additional Financial information

Highlights

Standard Chartered PLC (the Group) today releases its results for the year ended 31 December 2024. The following pages provide additional information related to the announcement.

Table of contents

Financial statements
Independent Auditor's report	2
Consolidated income statement	16
Consolidated statement of comprehensive income	17
Consolidated balance sheet	18
Consolidated statement of changes in equity	19
Cash flow statement	20
Notes to the financial statements	21
Shareholder information	122

Page 1

Independent Auditor's Report to the members of Standard Chartered PLC

Opinion

In our opinion:

•      Standard Chartered plc's group financial statements and parent company financial statements (the "financial statements") give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2024 and of the group's profit for the year then ended;

•      the group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards (UK IAS) and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU IFRS);

•      the parent company financial statements have been properly prepared in accordance with UK IAS as applied in accordance with section 408 of the Companies Act 2006; and

•      the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Standard Chartered plc (the 'Company' or the 'Parent Company') and its subsidiaries, interests in associates, and jointly controlled entities (together with the Company-the 'Group') for the year ended 31 December 2024 which comprise:

Group	Company
Consolidated income statement for the year ended 31 December 2024;	Balance sheet as at 31 December 2024;
Consolidated statement of comprehensive income for the year then ended;	Cash flow statement for the year then ended;
Consolidated balance sheet as at 31 December 2024;	Statement of changes in equity for the year then ended; and
Consolidated statement of changes in equity for the year then ended;	Related notes 1 to 40 to the financial statements, including: material accounting policy information.
Consolidated cash flow statement for the year then ended;
Related notes 1 to 40 to the financial statements, including: material accounting policy information;
Information marked as 'audited' within the Directors' remuneration report; and
Risk Review and Capital Review disclosures marked as 'audited'.

The financial reporting framework that has been applied in their preparation is applicable law and UK IAS and EU IFRS; and as regards the Parent Company financial statements, UK IAS as applied in accordance with section 408 of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Company and we remain independent of the Group and the Company in conducting the audit.

Page 2

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the Group and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

•      performing a risk assessment to identify factors that could impact the going concern basis of accounting, including consideration of principal and emerging risks;

•      assessing management's going concern assessment, including the Group's forecast capital, liquidity and leverage ratios over the period of twelve months from 21 February 2025, to evaluate the headroom against minimum regulatory requirements and the risk appetite set by the directors;

•      engaging EY valuation and economic specialists to assess and challenge the reasonableness of assumptions used to develop the forecasts in the Corporate Plan (5-year forward looking plan of the business) and evaluating the accuracy of historical forecasting;

•      assessing the Group's funding plan and repayment plan for funding instruments maturing over the period of twelve months from 21 February 2025;

•      understanding and evaluating credit rating agency ratings;

•      engaging EY prudential regulatory specialists to assess the results of management's stress testing, including consideration of principal and emerging risks, on funding, liquidity, and regulatory capital;

•      reviewing correspondence with prudential regulators and authorities for matters that may impact the going concern assessment; and

•      evaluating the going concern disclosure included in note 1 to the financial statements to assess that the disclosure was appropriate and in conformity with the reporting standards.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company's ability to continue as a going concern for a period of twelve months from 21 February 2025.

In relation to the Group and the Parent Company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern.

 

Overview of our audit approach

Audit scope	•  We performed an audit of the complete financial information of 10 components in 8 countries and audit procedures on specific balances for a further 8 components in 7 countries. •  We performed central procedures for certain audit areas and balances as outlined in Tailoring the scope section of our report.
Key audit matters	•  Credit impairment •  Basis of accounting and impairment assessment of China Bohai Bank (interest in associate) •  Impairment of investments in subsidiary undertakings •  Valuation of financial instruments held at fair value with higher risk characteristics.
Materiality	•  Overall group materiality of $340m which represents 5% of adjusted profit before tax.

Page 3

An overview of the scope of the parent company and group audits

Tailoring the scope

In the current year our audit scoping has been updated to reflect the new requirements of ISA (UK) 600 (Revised). We have followed a risk-based approach when developing our audit approach to obtain sufficient appropriate audit evidence on which to base our audit opinion. We performed risk assessment procedures, with input from our component auditors, to identify and assess risks of material misstatement of the Group financial statements and identified significant accounts and disclosures. When identifying components at which audit work needed to be performed to respond to the identified risks of material misstatement of the Group financial statements, we considered our understanding of the Group and its business environment, the applicable financial framework, the Group's system of internal control at the entity level, the existence of centralised processes, IT application environment, and any relevant internal audit results.

We took a centralised approach to auditing certain processes and controls, as well as the substantive testing of specific balances. This included audit work over the Group's Global Business Services shared services centre (SSC), Corporate and Investment Banking (CIB) SSC, Credit Impairment SSC and Technology.

We determined that centralised audit procedures can be performed across certain components for the key audit matters outlined later in this report, and for other audit areas, including: Revenue recognition; Management override of controls; Technology costs; Impairment of goodwill; Going concern and long-term viability; Hedge accounting; Climate risk; Share based payments; Taxation; Legal and regulatory matters; Centralised reconciliations; Onerous contracts, including impairment of leased properties; IT matters; and certain restructuring and transformation programmes.

In addition to the above areas, for selected components in Germany, Japan, South Africa, Iraq and Singapore, the primary audit engagement team (the 'Primary Audit Team') performed certain procedures centrally over the cash balances as at 31 December 2024. These components are separate to those described below.

We identified 18 components in 14 countries as individually relevant to the Group due a significant risk or an area of higher assessed risk of material misstatement of the group financial statements being associated with the components, or due to financial size of the component relative to the group.

For those individually relevant components, we identified the significant accounts where audit work needed to be performed at these components by applying professional judgement, having considered the group significant accounts on which centralised procedures are performed, the reasons for identifying the financial reporting component as an individually relevant component and the size of the component's account balance relative to the group significant financial statement account balance.

We then considered whether the remaining group significant account balances that are not subject to audit procedures, in aggregate, could give rise to a risk of material misstatement of the group financial statements.

Having identified the components for which work will be performed, we determined the scope to assign to each component.

Of the 18 components selected, we designed and performed audit procedures on the entire financial information of 10 components ("full scope components"). For 5 components, we designed and performed audit procedures on specific significant financial statement account balances or disclosures of the financial information of the component ("specific scope components"). For the remaining 3 components, we performed specified audit procedures to obtain evidence for one or more relevant assertions.

	Group`s Absolute PBT			Group Total Assets			Group`s Absolute Operating Income
	2024	2023		2024	2023		2024	2023
Full Scope	64%	62%		87%	87%		72%	72%
Specific Scope	10%	15%		5%	7%		9%	14%
Specified Procedures	2%	1%		0.30%	0.10%		2%	1%
Total	76%	78%		92%	94%		83%	87%

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Of the remaining components that together represent 24 per cent of the Group's absolute PBT, none are individually greater than 1.9 per cent. For certain of these components, we performed other procedures at the Group level which included: performing analytical reviews at the Group financial statement level, evaluating entity level controls, performing audit procedures on the centralised shared service centres, testing of consolidation journals and intercompany eliminations, inquiring with certain overseas EY teams on the outcome of prior year local statutory audits (where audited by EY) to identify any potential risks of material misstatement to the Group financial statements. We also had regard for the extent of centralised procedures in respect of key audit matters.

Involvement with component teams

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the Primary Audit Team or by component auditors from other firms operating under our instruction. All of the direct components of the Group (full, specific or specified procedures) were audited by EY global network firms. There was one non-EY component team auditing a single component in a single location, which was instructed by a direct component of the Group.

Audit procedures were performed on 3 full scope components (including the audit of the Company) directly by the Primary Audit Team (EY London) in the United Kingdom. Where components were audited by the Primary Audit Team, this was under the direction and supervision of the Senior Statutory Auditor. For the remaining 15 components, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole.

In addition to the above, the Primary Audit Team also performed full-scope audit procedures on components related to the Group consolidation process.

In addition, the Group has centralised processes and controls over key areas in its shared service centres. Members of the Primary Audit Team undertook direct oversight, review and coordination of our shared service centre audits. The Primary Audit Team continued to follow a programme of planned visits to component teams and shared service centres. During the current year's audit cycle, visits were undertaken by the Primary Audit Team to the component teams in the following locations:

•      Hong Kong

•      India (including the shared services centre)

•      Mainland China

•      Malaysia (including the shared services centre)

•      Pakistan

•      Republic of Korea

•      Singapore (including the shared services centre)

•      United Arab Emirates

•      United States of America

These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with local management, attending planning and closing meetings, and reviewing relevant audit working papers on risk areas. In addition to the site visits, the Primary Audit Team interacted regularly with the component and SSC audit teams where appropriate during various stages of the audit, reviewed relevant working papers and deliverables to the Primary Audit Team, and were responsible for the scope and direction of the audit process.

The Primary Audit Team also undertook video conference meetings with component and SSC audit teams and management. These virtual meetings involved discussing the audit approach and any issues arising from their work, as well as performing remote reviews of key audit workpapers.

This, together with the procedures performed at Group level, gave us appropriate evidence for our opinion on the Group and Company financial statements.

Page 5

Climate change

Stakeholders are increasingly interested in how climate change will impact the economy, including the banking sector, and further how this may consequently impact the valuation of assets and liabilities held on bank balance sheets. The Group manages climate risk according to the characteristics of the impacted risk types and is embedding climate-risk considerations into relevant frameworks, including principal risk type frameworks, and processes. The assessment of that risk by the Group is explained in the 'Risk Review and Capital Review' section, and in the 'Sustainability review' section of the Annual Report, where management has also explained their climate commitments.

All of these disclosures form part of the 'Other information', rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on 'Other information'.

In planning and performing our audit we assessed the potential impacts of climate change on the Group's business and any consequential material impact on its financial statements.

The Group has explained in the 'Sustainability review' section of the Annual Report how they have reflected the impact of climate change in their financial statements, including how this aligns with their commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2050. Significant judgements and estimates relating to climate change are included in the section 'Climate change impact on the Group's balance sheet' of note 1 to the financial statements. As stated in these disclosures, the Group has considered climate change to be an area which can impact accounting estimates and judgements through the uncertainty of future events and the impact of that uncertainty on the Group's assets and liabilities.

Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating whether management's assessment of the impact of climate risk has been appropriately reflected in the valuation of assets and liabilities, where material and where it can be reliably measured, following the currently effective requirements of UK IAS and EU IFRS. This was in the context of the Group's process being limited, given that this is a highly evolving area, as a result of limitations in the data available and the nascent modelling capabilities, and as the Group considers how it further embeds its climate ambitions into the planning process.

As part of this evaluation, we performed our own risk assessment, supported by our climate change specialists, to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit.

We also challenged the Directors' considerations of climate change risks in their assessment of going concern and viability, and the associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above.

Based on our work, we have considered the impact of climate change on the financial statements to impact certain key audit matters. Details of our procedures and findings are included in our explanation of key audit matters below.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Page 6

 

Risk

Our response to the risk

Credit Impairment Refer to the Audit Committee Report; Note 8 of the financial statements; and relevant credit risk disclosures At 31 December 2024, the Group reported total credit impairment balance sheet provision of $5,267 million (2023: $5,601 million). Management's judgements and estimates are highly subjective as a result of the significant uncertainty associated with the estimation of expected future credit losses. Assumptions with increased complexity in respect of the timing and measurement of expected credit losses (ECL) include: •  Staging - the determination of what constitutes significant increase in credit risk and consequent timely allocation of qualifying assets to the appropriate stage in accordance with IFRS 9; •  Model output and adjustments - Accounting interpretations, modelling assumptions and data used to develop, monitor and run the models that calculate the ECL, including the appropriateness, completeness and valuation of post-model adjustments applied to model output to address identified model deficiencies or risks not fully captured by the models; •  Economic scenarios - Significant judgements involved in the determination of the appropriateness of economic variables, the future forecasting of these variables and the parameters used in both the base case forecast and the Monte Carlo Simulation. The assessment of non-linearity produced by the Monte Carlo simulation, the benchmarking of the output to backstop discrete scenarios and the evaluation of the need for any Post Model adjustments; •  Management overlays - Appropriateness, completeness and valuation of risk event overlays to capture risks not identified by the credit impairment models, including the consideration of the risk of management override; and •  Individually assessed ECL allowances - Measurement of individual provisions including the assessment of probability weighted recovery scenarios, exit strategies, collateral valuations, expected future cashflows and the timing of these cashflows. In 2024, the most material factors impacting the ECL were in relation to the Commercial Real Estate portfolio in Mainland China and Hong Kong, geopolitical uncertainty and the continuing impact of higher interest rates and inflation. In addition, we have considered the impact of climate on the impairment provisions. Overall, in line with the prior year the level of judgement and estimation remains elevated as a result of the factors above and consequently the risk of a material misstatement to the ECL remained consistent with that of the prior year.

We evaluated the design of controls relevant to the Group's systems and processes over material ECL balances, involving EY specialists to assist us in performing our procedures where relevant. Based on our evaluation we selected the controls upon which we intended to rely and tested those for operating effectiveness. We performed an overall stand-back assessment of the ECL allowance in total and by stage to determine if the ECL was reasonable. We considered the overall credit quality of the Group's portfolios, risk profile, the impact of sovereign risk, challenges facing the Commercial Real Estate sector in Mainland China and Hong Kong and the impact of higher interest rates for longer in certain markets. We performed peer benchmarking to the extent that this was considered relevant and investigated and sought explanations for any areas identified as being outliers. Our assessment also included the evaluation of the macroeconomic environment by considering trends in the economies and countries to which the Group is exposed. Staging - We evaluated the criteria used to determine significant increase in credit risk including quantitative backstops with the resultant allocation of financial assets to stage 1, 2 or 3 in accordance with IFRS 9. We reperformed the staging distribution for a sample of financial assets and assessed the reasonableness of staging downgrades applied by management. We assessed the appropriateness of changes to the staging criteria. To test the completeness of the identification of significant increase in credit risk, we challenged the credit risk ratings (including appropriate operation of quantitative backstops) for a sample of performing accounts and other accounts exhibiting risk characteristics such as financial difficulty, deferment of payment, late payment and heightened risk accounts appearing on the watchlist. Modelled output and adjustments - With the support of our EY credit risk modelling specialists, we performed a risk assessment on models involved in the ECL calculation using EY independently determined quantitative and qualitative criteria and used this risk rating as a basis to select a sample of models to test. Based on this risk assessment, we evaluated a sample of ECL models by assessing the reasonableness of underpinning assumptions, inputs and formulae used. This included a combination of assessing the appropriateness of model design, model implementation and validation, sensitivity testing and recalculating the Probability of Default, Loss Given Default and Exposure at Default parameters. Together with our modelling specialists, we also assessed material post-model adjustments that were applied as a response to risks not fully captured by the models or for known model deficiencies. This included the completeness and appropriateness of these adjustments. We did not rely on controls over model monitoring and therefore adopted a substantive approach comprising reperformance of model monitoring procedures for models classified as significant or higher risk in accordance with our EY independent risk assessment. In response to the Bank's model simplification program that resulted in a number of low risk or immaterial models moving to a loss rate approach, we challenged whether there was a need for an overlay as result of the models no longer including a forward looking element as required by IFRS 9. To evaluate data quality, we performed sample testing over the completeness and accuracy of key data elements assessed to be material to the modelled ECL output, back to source evidence.

Page 7

 

Risk	Our response to the risk
Credit Impairment continued	Economic scenarios - In collaboration with our economists, we challenged the completeness and appropriateness of the macroeconomic variables used as inputs to the ECL models. Additionally, we involved our economic specialists to assist us in evaluating the reasonableness of the base forecast for a sample of macroeconomic variables most relevant for the Group's ECL calculation. Procedures performed included benchmarking the forecast for a sample of macroeconomic variables to peers, historical data and a variety of global external sources. We assessed the output for a sample of economic variables across different markets from the Monte Carlo simulation for reasonableness. We reviewed and challenged the appropriateness of the underlying coding, assumptions, and output of the Monte Carlo simulation. We assessed the reasonableness of the non-linearity impact on ECL allowances. We engaged our economists, to assess and challenge the Group's choice of discrete scenarios to benchmark the output from the Monte Carlo model and determine the sensitivity analysis as set out on pages 242 and 243 in the annual report. This challenge included the choice of narrative scenarios and the weights applied to each scenario. We also performed a stand-back assessment by benchmarking the uplift and overall ECL charge and provision coverage to peers. Management overlays - We challenged the completeness and appropriateness of overlays used for risks not captured by the models. We focussed our challenge on Commercial Real Estate in Mainland China and Hong Kong, the increasing levels of uncertainty in the outlook for Bangladesh given the political situation and the introduction of a new overlay relating to Bank's exposure to clients trading on two failed e-commerce platforms in South Korea. Our procedures included assessing the need for management overlays, evaluating the assumptions and judgments used to determine the overlays taking current market conditions into account, and computing independent ranges where appropriate. In addition, with the support from our climate risk modelling specialists we evaluated the initial ECL produced by management's models and assessed the appropriateness of the adjustments to the model output to determine the overall climate overlay. Individually assessed ECL allowances - We selected a sample of individually assessed provisions to recalculate. Our recalculation procedures included challenging management's forward looking economic assumptions of the recovery outcomes identified, cashflow profiles and timings and the individual probability weightings used for each scenario. We also engaged our valuation specialists to test the value of the collateral used in management's calculations on a sample basis.
Key observations communicated to the Audit Committee We communicated that we are satisfied the Bank's ECL provisions were reasonably estimated and materially in compliance with IFRS 9. We highlighted the following matters to the Audit Committee that contributed to our overall conclusion: •  Our evaluation of the appropriateness of the significant increase in credit risk triggers, and the results of our staging reperformance. •  For individually assessed ECL allowances, the overall reasonableness of the provisions, including assumptions applied, with a focus on exposures on Commercial Real Estate in Mainland China and Hong Kong. •  Our assessment of the appropriateness of post model adjustments and overlays, including overlays relating to Commercial Real Estate in Mainland China and Hong Kong, and non-linearity. •  Our assessment of the appropriateness of the Group's models to generate the ECL and staging outcomes including the appropriateness and validity of the data used in the models and to generate the staging and consequent ECL. •  Our assessment of the appropriateness of the Group's climate models to compute the impact of climate related risks on the portfolio, noting the judgmental nature of the output and that these first generation models are expected to evolve significantly over time. We also highlighted to the Committee that there remains increased uncertainty and volatility in determining expected credit losses due to the elevated risks in the macroeconomic and geopolitical landscape.
How we scoped our audit to respond to the risk and involvement with component teams For the purposes of determining the scope of work to be conducted centrally and by component teams, we considered the following: •  The Bank's material IFRS 9 systems and processes, including modelled ECL, and where those systems and process were located •  The Groups gross exposure and ECL by jurisdiction •  The Bank's and EY's independent sovereign risk assessment •  Jurisdiction of origin for individual stage 3 exposures Based on this assessment, we determined that credit related procedures were required to be performed centrally and by 9 full scope, 5 specific scope and 2 specified scope locations. The Group audit team`s involvement with the component teams and procedures performed are detailed in the "Involvement with component teams" section of our report.
Page 8
Risk	Our response to the risk
Basis of accounting and impairment assessment of China Bohai Bank (Interest in Associate) Refer to the Audit Committee Report; Accounting policies; and Note 32 of the financial statements •  Interest in Associate - China Bohai Bank $738 million (2023: $700 million). •  Other impairment - China Bohai Bank - NIL (2023: $850 million). •  Cumulative impairment: $1,459 million (2023: $1,459 million). At 31 December 2024, the Group's share of China Bohai Bank's market capitalisation was $400m lower than the carrying value of $738m. We focused on judgements and estimates, including the appropriateness of the equity accounting treatment under IAS 28 and the assessment of whether the investment was impaired. Basis of accounting The Group holds a 16.26 per cent stake in China Bohai Bank and equity accounts for the investment as an associate, on the grounds that the Group is able to exercise significant influence over China Bohai Bank. IAS 28 states that if the entity holds, directly or indirectly, less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. There is a risk that the equity accounting treatment may not be appropriate, if the Group cannot demonstrate that it exerts significant influence over China Bohai Bank. The risk in respect of significant influence has not changed compared to the prior year. Impairment testing At 31 December 2024, China Bohai Bank's market capitalisation was significantly lower than the carrying value of the investment. In addition, the financial performance of China Bohai Bank deteriorated during 2024 and China Bohai Bank did not pay a dividend for a second year. These matters are indicators of impairment. Impairment of the investment in China Bohai Bank is determined by comparing the carrying value to the higher of value in use (VIU) and fair value less costs to sell. The VIU is modelled by reference to future cashflow forecasts (forecast profit, including a haircut for regulatory capital), exit multiples, discount rate and macroeconomic assumptions such as forward market interest rate curves. The assumptions underpinning management's assessment of the VIU are subject to estimation uncertainty and consequently, there is a risk that if the judgements and assumptions are inappropriate, the investment in China Bohai Bank may be misstated.	We obtained an understanding of management's process and evaluated the design of controls. Our audit strategy was fully substantive. Basis of accounting We evaluated the evidence that the Group presented to demonstrate that it exercises significant influence over China Bohai Bank, through Board representation, membership of Board Committees and sharing of technical advice. We observed certain meetings alongside Group management and China Bohai Bank management to identify facts and circumstances impacting the assessment of significant influence exercised by the Group. Impairment testing We assessed the appropriateness of the Group's VIU methodology for compliance with the accounting standards. We tested the mathematical accuracy of the VIU model and engaged our valuation and modelling specialists to support the audit team in calculating an independent range for the VIU. We performed audit procedures to assess the reasonableness of the Group's forecast of the future cashflows relating to Bohai, and other key assumptions with regard to the relevance and reliability of data inputs. We performed a stand-back assessment to determine whether the carrying value of the Group's investment in China Bohai Bank was reasonable. We considered the macroeconomic environment in China, ratings agency reports and public disclosures by Bohai. We benchmarked the forecasts to reputable broker reports published for comparable companies. We assessed the appropriateness of disclosures in the annual report in relation to China Bohai Bank, including the impact of reasonably possible changes in key assumptions on the carrying value of the investment.
Key observations communicated to the Audit Committee On the basis of the evidence, we concluded that the Group continues to maintain significant influence over China Bohai Bank as at 31 December 2024.We highlighted our assessment of the impairment methodology, its consistency year-on-year and our view on significant assumptions to the VIU. We concluded that the Interest in Associate - China Bohai Bank balance and the associated financial statement disclosures were not materially misstated as at 31 December 2024.
How we scoped our audit to respond to the risk and involvement with component teams We performed centralised audit procedures over the risk, with the support of the EY Hong Kong and non-EY Component team in performing certain procedures to address the risk. The Group audit team`s involvement with the component teams and procedures performed are detailed in the Involvement with component audit teams' section of our report.
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Risk	Our response to the risk
Impairment assessment of investments in subsidiary undertakings Impairment of investments in subsidiary undertakings: Accounting policies; and Note 32 of the financial statements. Refer to the Audit Committee Report. In the Parent Company financial statements as at 31 December 2024, the investment in subsidiary undertakings balance was $61,593 million (2023: $60,791 million). On an annual basis, management is required to perform an impairment assessment for indicators of impairment in respect of investments in subsidiary undertakings. Where indicators of impairment are identified, the recoverable amount of the investment should be estimated. The Group identified indicators of impairment of investments in subsidiary undertakings, including macroeconomic and geopolitical factors which have an impact on the financial position and performance of the subsidiaries. In assessing for indicators of impairment, among other procedures, management compares the Net Asset Value ('NAV') of the subsidiary to the carrying value of each direct subsidiary of the Parent Company. Where the net assets do not support the carrying value, the recoverable amount is estimated by determining the higher of VIU or fair value less cost to sell. Where the recoverable amount is based on the VIU, this is modelled by reference to future cashflow forecasts (profit forecast including a regulatory capital haircut adjustment), discount rates and macroeconomic assumptions such as long-term growth rates. There is a risk that if the judgements and assumptions underpinning the impairment assessments are inappropriate, then the investments in subsidiaries balances may be misstated. The level of risk remains consistent with the prior year.	We obtained an understanding of management's process and evaluated the design of controls. Our audit strategy was fully substantive. We assessed the appropriateness of the Group's methodology for testing the impairment of investments in subsidiary undertakings for compliance with accounting standards. We agreed the NAV of the subsidiaries to their carrying value to confirm impairment or reversal of impairment recognised in the Parent`s Company financial results. We agreed the inputs in the VIU model to their source and tested the mathematical accuracy of the VIU model. We engaged EY specialists to support the audit team in assessing reasonableness of the regulatory haircut adjustment to future profitability forecasts and calculating an independent range for assumptions underlying the VIU calculations, such as the discount rate and long-term growth rate. We also reconciled the future profitability forecasts of each subsidiary to the Group's approved Corporate Plan ('the Plan'). We engaged our specialist team to determine the reasonableness of the forward macroeconomic inputs used in the Plan. We assessed the appropriateness of disclosures for impairment of investments in subsidiary undertakings in accordance with IAS 36.
Key observations communicated to the Audit Committee Investments in subsidiary undertakings balance reported in the Parent Company financial statements and the associated disclosures, are not materially misstated as at 31 December 2024.
How we scoped our audit to respond to the risk and involvement with component teams All audit work performed to address this risk was materially undertaken centrally by the Group audit team.

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Risk	Our response to the risk
Valuation of financial instruments held at fair value with higher risk characteristics Refer to the Audit Committee Report; Accounting policies; and Note 13 of the financial statements. At 31 December 2024, the Group reported financial assets measured at fair value of $348,408 million (2023: $301,976 million), and financial liabilities at fair value of $167,526 million (2023: $139,157 million), of which financial assets of $8,053 million (2023: $6,714 million) and financial liabilities of $4,937 million (2023: $2,960 million) are classified as Level 3 in the fair value hierarchy. The fair value of financial instruments with higher risk characteristics involves the use of management judgement in the selection of valuation models and techniques, pricing inputs and assumptions and fair value adjustments. A higher level of estimation uncertainty is involved for financial instruments valued using complex models; pricing inputs that have limited observability; and fair value adjustments, including Credit Valuation Adjustments for illiquid counterparties. We considered the following portfolios presented a higher level of estimation uncertainty: •  Derivatives: Level 3 and certain Level 2 derivatives (including those embedded within customer accounts, debt securities in issue, and deposits by banks) whose valuation involves the use of complex models; and •  Other Level 3 financial instruments: equity shares, loans and advances to customers, reverse repurchase agreements and other similar secured lending, and debt securities and other eligible bills with unobservable pricing inputs. The level of risk remains consistent with the prior year.	We evaluated the design and operating effectiveness of controls relating to the valuation of financial instruments, including Independent Price Verification (IPV), model validation, fair value adjustments, and significant deal review. Among other procedures, we engaged our valuation specialists to assist the audit team in performing the following testing on a risk-assessed sample basis: •  Test valuations dependent on complex models by independently revaluing Level 3 and certain Level 2 derivative financial instruments (including those embedded within customer accounts, debt securities in issue, and deposits by banks) to assess the appropriateness of models and the adequacy of assumptions and inputs used by the Group; •  Test valuations of other Level 3 financial instruments with higher estimation uncertainty, such as equity shares, loans and advances to customers, reverse repurchase agreements and other similar secured lending, and debt securities and other eligible bills. Where appropriate, we compared management's valuation to our own independently developed range; •  Assessed the appropriateness of pricing inputs as part of the IPV process; and •  Compared the methodology used for fair value adjustments to current market practice. We revalued a sample of valuation adjustments, compared market inputs to third party data, and challenged the basis for determining illiquid credit spreads. Where differences between our independent valuation and management's valuation were outside our thresholds, we performed additional testing to assess the impact on the valuation of financial instruments. Throughout our audit procedures we considered the continuing uncertainty arising from the current macroeconomic environment. In addition, we assessed whether there were any indicators of aggregate bias in financial instrument marking and methodology assumptions.
Key observations communicated to the Audit Committee We concluded that assumptions used by management to estimate the fair value of financial instruments with higher risk characteristics, and the recognition of related income, were reasonable. We highlighted the following matters to the Audit Committee: •  We did not identify material differences arising from our independent testing of valuations dependent on complex models; •  The fair values of other Level 3 financial instruments, valued using pricing inputs with limited observability, were not materially misstated as at 31 December 2024, based on our independent calculations; and •  Valuation adjustments, including Credit Valuation Adjustments for illiquid counterparties, were appropriate, based on our analysis of market data and benchmarking of pricing information.
How we scoped our audit to respond to the risk and involvement with component teams We performed centralised audit procedures over this risk. These procedures were performed by the Primary Team and CIB SSC, covering 99.1 per cent of the risk amount.

In the prior year, our auditor's report included key audit matters in relation to privileged access management and the valuation of goodwill. In the current year, following the implementation of management's remediation programme, the risk relating to privileged access, has reduced below the threshold for being a key audit matter. Also, due to a reduction of the risk of material impairment of goodwill, we no longer consider it a key audit matter.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be $340 million (2023: $274 million), which is 5 per cent (2023: 5 per cent) of adjusted profit before tax. This reflects statutory profit before tax adjusted for certain non-recurring items. We believe that adjusted profit before tax provides us with the most appropriate and relevant measure for the users of the financial statements, given the Group is profit-making, it is consistent with the wider industry, and it is the standard for listed and regulated entities. This increase from prior year is driven by an increase in our materiality basis of adjusted profit before tax and is reflected in all materiality thresholds discussed below.

Page 11

We determined materiality for the Parent Company to be $306 million (2023: $247 million), which represents 90 per cent of Group materiality (2023:90 per cent) and equates to 0.6 per cent (2023: 0.5 per cent) of the equity of the Parent company. We believe that equity provides us with the most appropriate measure for the users of the Parent Company's financial statements, given that the Parent Company is primarily a holding company.

Starting basis

·      Reported profit before tax - $6,014m

Adjustments

·      Non-recurring items: $793m

Materiality

·      Adjusted profit before tax - $6,807m

·      Materiality of $340m (5% of adjusted profit before tax)

During the course of our audit, we reassessed initial materiality. This assessment resulted in a higher final materiality calculated based on the actual financial performance of the Group for the year.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 50 per cent (2023: 50 per cent) of our planning materiality, namely $170m (2023: $137m). We have set performance materiality at this percentage due to a variety of risk factors, such as the expectation of misstatements, internal control environment considerations, and other factors such as the global complexity of the Group.

Audit work was undertaken at component locations for the purpose of responding to the assessed risks of material misstatement of the group financial statements. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was $16m to $46m (2023: $11.4m to $26.2m).

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $17m (2023: $14m), which is set at 5 per cent of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the Annual Report set out on pages 1 to 406, including the Strategic report (pages 1 to 46), the Financial Review (pages 47 to 56), the Sustainability Review (pages 57 to 102), the Directors' report (pages 103 to 191), the Statement of directors' responsibilities (page 192) and the information not marked as 'audited' in the Risk review and Capital review section (pages 193 to 274), and the Supplementary information (pages 381 to 406), other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Page 12

 

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•      the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

•      the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

•      adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

•      the Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or

•      certain disclosures of directors' remuneration specified by law are not made; or

•      we have not received all the information and explanations we require for our audit.

Corporate Governance Statement

We have reviewed the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company's compliance with the provisions of the UK Corporate Governance Code specified for our review by the UK Listing Rules.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

•      Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified;

•      Directors' explanation as to its assessment of the Company's prospects, the period this assessment covers and why the period is appropriate;

•      Director's statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities;

•      Directors' statement on fair, balanced and understandable;

•      Board's confirmation that it has carried out a robust assessment of the emerging and principal risks;

Page 13

•    The section of the annual report that describes the review of effectiveness of risk management and internal control systems; and

•    The section describing the work of the audit committee.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.

•      We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are those that relate to the reporting framework (UK-adopted IAS and EU IFRS, the Companies Act 2006 and the UK Corporate Governance Code, the Financial Conduct Authority (FCA) Listing Rules, the Main Board Listing Rules of the Hong Kong Stock Exchange), regulations and supervisory requirements of the Prudential Regulation Authority (PRA), FRC, FCA and other overseas regulatory requirements, including but not limited to regulations in its major markets such as Mainland China, Hong Kong, India, Republic of Korea, Singapore, the United Arab Emirates, the United States of America, and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the financial statements and those laws and regulations relating to regulatory capital and liquidity, conduct, financial crime including anti-money laundering, sanctions and market abuse, recognising the financial and regulated nature of the Group's activities.

•      We understood how the Group is complying with those frameworks by performing a combination of inquiries of senior management and those charged with governance as required by auditing standards, review of board and certain committee meeting minutes, gaining an understanding of the Group's approach to governance, inspection of regulatory correspondence in the year and engaging with internal and external legal counsel. We also engaged EY financial crime and forensics specialists to perform procedures on areas relating to anti-money laundering, whistleblowing, and sanctions compliance. Through these procedures, we became aware of actual or suspected non-compliance. The identified actual or suspected non-compliance was not sufficiently significant to our audit that would have resulted in it being identified as a key audit matter.

Page 14

•      We assessed the susceptibility of the Group's financial statements to material misstatement, including how fraud might occur by considering the controls that the Group has established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud. Our procedures to address the risks identified also included incorporation of unpredictability into the nature, timing and/or extent of our testing, challenging assumptions and judgements made by management in their significant accounting estimates and journal entry testing.

•      Based on this understanding, we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved inquiries of the Group's internal and external legal counsel, money laundering reporting officer, internal audit, certain senior management executives, and focused testing on a sample basis, including journal entry testing. We also performed inspection of key correspondence from the relevant regulatory authorities as well as review of board and committee minutes.

•      For instances of actual or suspected non-compliance with laws and regulations, which have a material impact on the financial statements, these were communicated by management to the Group audit engagement team and component teams (where applicable) who performed audit procedures such as inquiries with management, sending confirmations to external legal counsel, substantive testing and meeting with regulators. Where appropriate, we involved specialists from our firm to support the audit team.

•      The Group is authorised to provide banking, insurance, mortgages and home finance, consumer credit, pensions, investments and other activities. The Group operates in the banking industry which is a highly regulated environment. As such, the Senior Statutory Auditor considered the experience and expertise of the Group audit engagement team, the component teams and the shared service centre teams to ensure that the team had the appropriate competence and capabilities, which included the use of specialists where appropriate.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Other matters we are required to address

•      Following the recommendation from the audit committee, we were re-appointed by the Company on 10 May 2024 to audit the financial statements for the year ending 31 December 2024 and subsequent financial periods.

•      The period of total uninterrupted engagement including previous renewals and reappointments is five years, covering the years ending 31 December 2020 to 31 December 2024.

•      The audit opinion is consistent with the additional report to the audit committee.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

David Canning-Jones (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

London

21 February 2025

Page 15

Consolidated income statement

For the year ended 31 December 2024

	Notes	2024 $million	2023 $million
Interest income		27,862	27,227
Interest expense		(21,496)	(19,458)
Net interest income	3	6,366	7,769
Fees and commission income		4,623	4,067
Fees and commission expense		(889)	(815)
Net fee and commission income	4	3,734	3,252
Net trading income	5	9,615	6,292
Other operating income	6	(172)	706
Operating income		19,543	18,019
Staff costs		(8,510)	(8,256)
Premises costs		(401)	(422)
General administrative expenses		(2,465)	(1,802)
Depreciation and amortisation		(1,126)	(1,071)
Operating expenses	7	(12,502)	(11,551)
Operating profit before impairment losses and taxation		7,041	6,468
Credit impairment	8	(547)	(508)
Goodwill, property, plant and equipment and other impairment	9	(588)	(1,008)
Profit from associates and joint ventures	32	108	141
Profit before taxation		6,014	5,093
Taxation	10	(1,972)	(1,631)
Profit for the year		4,042	3,462
Profit attributable to:
Non-controlling interests	29	(8)	(7)
Parent company shareholders		4,050	3,469
Profit for the year		4,042	3,462

 

		cents	cents
Earnings per share:
Basic earnings per ordinary share	12	141.3	108.6
Diluted earnings per ordinary share	12	137.7	106.2

The notes form an integral part of these financial statements.

Page 16

Consolidated statement of comprehensive income

For the year ended 31 December 2024

	Notes	2024 $million	2023 $million
Profit for the year		4,042	3,462
Other comprehensive income
Items that will not be reclassified to income statement:		(181)	239
Own credit (losses)/gains on financial liabilities designated at fair value through profit or loss		(426)	212
Equity instruments at fair value through other comprehensive income		71	181
Actuarial gains/(losses) on retirement benefit obligations	30	52	(47)
Revaluation Surplus		25	-
Taxation relating to components of other comprehensive income/(loss)	10	97	(107)
Items that may be reclassified subsequently to income statement:		(389)	562
Exchange differences on translation of foreign operations:
Net losses taken to equity		(1,423)	(734)
Net gains on net investment hedges	14	678	215
Share of other comprehensive income/(loss) from associates and joint ventures	32	9	(7)
Debt instruments at fair value through other comprehensive income
Net valuation gains taken to equity		283	383
Reclassified to income statement	6	237	115
Net impact of expected credit losses		(35)	(48)
Cash flow hedges:
Net movements in cash flow hedge reserve	14	(101)	767
Taxation relating to components of other comprehensive income	10	(37)	(129)
Other comprehensive (loss)/income for the year, net of taxation		(570)	801
Total comprehensive income for the year		3,472	4,263
Total comprehensive income attributable to:
Non-controlling interests	29	(22)	(38)
Parent company shareholders		3,494	4,301
Total comprehensive income for the year		3,472	4,263

Page 17

Consolidated balance sheet

As at 31 December 2024

	Notes	2024 $million	2023 $million
Assets
Cash and balances at central banks	13,35	63,447	69,905
Financial assets held at fair value through profit or loss	13	177,517	147,222
Derivative financial instruments	13,14	81,472	50,434
Loans and advances to banks	13,15	43,593	44,977
Loans and advances to customers	13,15	281,032	286,975
Investment securities	13	144,556	161,255
Other assets	20	43,468	47,594
Current tax assets	10	663	484
Prepayments and accrued income		3,207	3,033
Interests in associates and joint ventures	32	1,020	966
Goodwill and intangible assets	17	5,791	6,214
Property, plant and equipment	18	2,425	2,274
Deferred tax assets	10	414	702
Retirement benefit schemes in surplus	30	151	-
Assets classified as held for sale	21	932	809
Total assets		849,688	822,844
Liabilities
Deposits by banks	13	25,400	28,030
Customer accounts	13	464,489	469,418
Repurchase agreements and other similar secured borrowing	13,16	12,132	12,258
Financial liabilities held at fair value through profit or loss	13	85,462	83,096
Derivative financial instruments	13,14	82,064	56,061
Debt securities in issue	13,22	64,609	62,546
Other liabilities	23	44,681	39,221
Current tax liabilities	10	726	811
Accruals and deferred income		6,896	6,975
Subordinated liabilities and other borrowed funds	13,27	10,382	12,036
Deferred tax liabilities	10	567	770
Provisions for liabilities and charges	24	349	299
Retirement benefit schemes in deficit	30	266	183
Liabilities included in disposal groups held for sale	21	381	787
Total liabilities		798,404	772,491
Equity
Share capital and share premium account	28	6,695	6,815
Other reserves		8,724	9,171
Retained earnings		28,969	28,459
Total parent company shareholders' equity		44,388	44,445
Other equity instruments	28	6,502	5,512
Total equity excluding non-controlling interests		50,890	49,957
Non-controlling interests	29	394	396
Total equity		51,284	50,353
Total equity and liabilities		849,688	822,844

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of directors and authorised for issue on 21 February 2025 and signed on its behalf by:

 

José Viñals                                                            Bill Winters                                                         Diego De Giorgi

Group Chairman                                                 Group Chief Executive                                       Group Chief Financial Officer

Page 18

Consolidated statement of changes in equity

For the year ended 31 December 2024

	Ordinary share capital and share premium account $million	Preference share capital and share premium account $million	Capital and merger reserves1 $million	Own credit adjust-ment reserve $million	Fair value through other compre-hensive income reserve - debt $million	Fair value through other compre-hensive income reserve - equity $million	Cash- flow hedge reserve $million	Trans-lation reserve $million	Retained earnings $million	Parent company share-holders' equity $million	Other equity instru-ments $million	Non-controlling interests $million	Total $million
As at 01 January 2023	5,436	1,494	17,338	(63)	(1,116)	206	(564)	(7,636)	28,067	43,162	6,504	350	50,016
Profit for the year	-	-	-	-	-	-	-	-	3,469	3,469	-	(7)	3,462
Other comprehensive income/(loss)12	-	-	-	163	426	124	655	(489)	(47)2	832	-	(31)	801
Distributions	-	-	-	-	-	-	-	-	-	-	-	(26)	(26)
Redemption of other equity instruments	-	-	-	-	-	-	-	-	-	-	(1,000)	-	(1,000)
Treasury shares net movement	-	-	-	-	-	-	-	-	(189)	(189)	-	-	(189)
Share option expense, net of taxation	-	-	-	-	-	-	-	-	173	173	-	-	173
Dividends on ordinary shares	-	-	-	-	-	-	-	-	(568)	(568)	-	-	(568)
Dividends on preference shares and AT1 securities	-	-	-	-	-	-	-	-	(452)	(452)	-	-	(452)
Share buyback3,4	(115)	-	115	-	-	-	-	-	(2,000)	(2,000)	-	-	(2,000)
Other movements	-	-	-	-	-	-	-	125	6	18	85	1106	136
As at 31 December 2023	5,321	1,494	17,453	100	(690)	330	91	(8,113)	28,459	44,445	5,512	396	50,353
Profit for the year	-	-	-	-	-	-	-	-	4,050	4,050	-	(8)	4,042
Other comprehensive (loss)/income12	-	-	-	(377)	442	(26)10	(87)	(735)	2272,11	(556)	-	(14)	(570)
Distributions	-	-	-	-	-	-	-	-	-	-	-	(43)	(43)
Other equity instruments issued, net of expenses	-	-	-	-	-	-	-	-	-	-	1,56813	-	1,568
Redemption of other equity instruments	-	-	-	-	-	-	-	-	-	-	(553)14	-	(553)
Treasury shares net movement	-	-	-	-	-	-	-	-	(168)	(168)	-	-	(168)
Share option expense, net of taxation	-	-	-	-	-	-	-	-	269	269	-	-	269
Dividends on ordinary shares	-	-	-	-	-	-	-	-	(780)	(780)	-	-	(780)
Dividends on preference shares and AT1 securities	-	-	-	-	-	-	-	-	(457)	(457)	-	-	(457)
Share buyback8,9	(120)	-	120	-	-	-	-	-	(2,500)	(2,500)	-	-	(2,500)
Other movements	-	-	-	(1)	7	-	-	2105	(131)7	85	(25)14	636	123
As at 31 December 2024	5,201	1,494	17,573	(278)	(241)	304	4	(8,638)	28,969	44,388	6,502	394	51,284

1   Includes capital reserve of $5 million, capital redemption reserve of $457 million and merger reserve of $17,111 million

2   Includes actuarial gain, net of taxation on Group defined benefit schemes

3   On 16 February 2023, the Group announced the buyback programme for a share buyback of its ordinary shares of $0.50 each. Nominal value of share purchases was $58 million, and the total consideration paid was $1,000 million and the buyback completed on 29 September 2023. The total number of shares purchased was 116,710,492, representing 4.03 per cent of the ordinary shares in issue as at the commencement of the buyback. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account

4   On 28 July 2023, the Group announced the buyback programme for a share buyback of its ordinary shares of $0.50 each. Nominal value of share purchases was $57 million, and the total consideration paid was $1,000 million and the buyback completed on 6 November 2023. The total number of shares purchased was 112,982,802, representing 3.90 per cent of the ordinary shares in issue as at the commencement of the buyback. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account

5   Movement related to Translation adjustment and AT1 Securities charges (2023). December 2024 movement includes realisation of translation adjustment loss from sale of SCB Zimbabwe Limited ($190 million), SCB Angola S.A. ($31 million), SCB Sierra Leone Limited ($25 million) transferred to other operating income

6   Movements primarily from non-controlling interest pertaining to Mox Bank Limited ($48 million), Trust Bank Singapore Limited ($34 million) and Zodia Custody Limited ($28 million) in 2023. Movements in 2024 are primarily from non-controlling interest pertaining to Mox Bank Limited ($14 million) and Trust Bank Singapore Limited ($55 million) offset by SCB Angola S.A. ($6 million)

7   Mainly includes movements related to Ghana hyperinflation

8   On 23 February 2024, the Group announced the buyback programme for a share buyback of its ordinary shares of $0.50 each. Nominal value of share purchases was $57 million, the total consideration paid was $1,000 million and the buyback completed on 25 June 2024. The total number of shares purchased was 113,266,516, representing 4.25 per cent of the ordinary shares in issue at the beginning of the programme. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account.

9   On 30 July 2024, the Group announced the buyback programme for a share buyback of its ordinary shares of $0.50 each. Nominal value of share purchases was $63 million, as at December 2024 the buyback is ongoing, with the total number of shares purchased of 126,262,414 representing 4.95 per cent of the ordinary shares in issue at the beginning of the programme, the total consideration was $1,355 million, and a further $145 million relating to irrevocable obligation to buyback shares under the buyback programme has been recognised. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account.

10     Includes $174 million gain on sale of equity investment transferred to retained earnings partly offset by $76 million reversal of deferred tax liability and $72 million mark-to-market gain on equity instrument

11     Includes $174 million gain on sale of equity investment in other comprehensive income reserve transferred to retained earnings partly offset by $13 million capital gain tax

12     All the amounts are net of tax

13     Includes $993 million and $575 million (SGD 750 million) fixed rate resetting perpetual subordinated contingent convertible AT1 securities issued by Standard Chartered PLC

14     Relates to redemption of AT1 securities of SGD 750 million ($553 million) and realised translation loss ($25 million) reported in other movements

Note 28 includes a description of each reserve.

The notes form an integral part of these financial statements.

Page 19

Cash flow statement

For the year ended 31 December 2024

	Notes	Group			Company
		2024 $million	2023 $million		2024 $million	2023 $million
Cash flows from operating activities:
Profit before taxation		6,014	5,093		3,424	4,269
Adjustments for non-cash items and other adjustments included within income statement	34	2,668	3,274		(1,670)	(2,847)
Change in operating assets	34	(66,431)	(14,458)		682	(3,819)
Change in operating liabilities	34	39,373	1,977		(864)	3,239
Contributions to defined benefit schemes	30	(68)	(81)		-	-
UK and overseas taxes paid	10	(2,045)	(1,367)		-	-
Net cash (used in)/from operating activities		(20,489)	(5,562)		1,572	842
Cash flows from investing activities:
Internally generated capitalised software	17	(953)	(1,124)		-	-
Disposal of Internally generated Capitalised Software	17	5	-		-	-
Purchase of property, plant and equipment	18	(456)	(159)		-	-
Disposal of property, plant and equipment	18	56	53		-	-
Disposal of held for sale property, plant and equipment	21	53	191		-	-
Acquisition of investment associates, and joint ventures	32	(12)	(47)		-	-
Dividends received from subsidiaries, associates and joint ventures	32,34	36	11		4,101	4,738
Disposal of investment in subsidiaries, associates, and joint ventures1		74	3,603		-	-
Purchase of investment securities		(217,448)	(229,302)		(1,287)	(423)
Disposal and maturity of investment securities		230,098	242,585		1,273	2,000
Net cash from investing activities		11,453	15,811		4,087	6,315
Cash flows from financing activities:
Exercise of share options		33	26		33	26
Purchase of own shares		(201)	(215)		(201)	(215)
Cancellation of shares including share buyback		(2,500)	(2,000)		(2,500)	(2,000)
Premises and equipment lease liability principal payment		(205)	(234)		-	-
Issue of Additional Tier 1 Capital net of expenses	28	1,568	-		1,568	-
Redemption of Tier 1 Capital	28	(553)	(1,000)		(553)	(1,000)
Gross proceeds from issue of subordinated liabilities	34	-	18		-	-
Interest paid on subordinated liabilities	34	(519)	(563)		(505)	(545)
Repayment of subordinated liabilities	34	(1,517)	(2,160)		(1,517)	(2,160)
Proceeds from issue of senior debts	34	11,044	15,261		3,887	5,105
Repayment of senior debts	34	(11,185)	(6,471)		(2,619)	(2,037)
Interest paid on senior debts	34	(1,366)	(1,145)		(708)	(434)
Net cash inflow from Non-controlling interest	29	55	116		-	-
Distributions and dividends paid to non-controlling interests, preference shareholders and AT1 securities		(500)	(478)		(457)	(452)
Dividends paid to ordinary shareholders		(780)	(568)		(780)	(568)
Net cash (used in)/from financing activities		(6,626)	587		(4,352)	(4,280)
Net (decrease)/increase in cash and cash equivalents		(15,662)	10,836		1,307	2,877
Cash and cash equivalents at beginning of the year		107,635	97,595		10,294	7,417
Effect of exchange rate movements on cash and cash equivalents		(2,045)	(796)		-	-
Cash and cash equivalents at end of the year	35	89,928	107,635		11,601	10,294

1 2024 balance includes disposal of SCB Zimbabwe Limited ($24 million), SCB Angola S.A. ($10 million), SCB Sierra Leone Limited ($17 million), Shoal limited ($17 million) and Autumn life Pte. Ltd ($6 million). 2023 balance includes disposal of aviation finance leasing business ($3,570 million), sale of Metaco SA ($14 million), Cardspal Pte. Ltd. ($12 million) and Kozagi ($7 million).

Interest received was $28,224 million (31 December 2023: $27,136 million), interest paid was $21,776 million (31 December 2023: $18,379 million).

Page 20

Contents - Notes to the financial statements

Section	Note
Basis of preparation	1	Accounting policies
Performance/return	2	Segmental information
	3	Net interest income
	4	Net fees and commission
	5	Net trading income
	6	Other operating income
	7	Operating expenses
	8	Credit impairment
	9	Goodwill, property, plant and equipment and other impairment
	10	Taxation
	11	Dividends
	12	Earnings per ordinary share
Assets and liabilities held at fair value	13	Financial instruments
	14	Derivative financial instruments
Financial instruments held at amortised cost	15	Loans and advances to banks and customers
	16	Reverse repurchase and repurchase agreements including other similar lending and borrowing
Other assets and investments	17	Goodwill and intangible assets
	18	Property, plant and equipment
	19	Leased assets
	20	Other assets
	21	Assets held for sale and associated liabilities
Funding, accruals, provisions, contingent liabilities and legal proceedings	22	Debt securities in issue
	23	Other liabilities
	24	Provisions for liabilities and charges
	25	Contingent liabilities and commitments
	26	Legal and regulatory matters
Capital instruments, equity and reserves	27	Subordinated liabilities and other borrowed funds
	28	Share capital, other equity instruments and reserves
	29	Non-controlling interests
Employee benefits	30	Retirement benefit obligations
	31	Share-based payments
Scope of consolidation	32	Investments in subsidiary undertakings, joint ventures and associates
	33	Structured entities
Cash flow statement	34	Cash flow statement
	35	Cash and cash equivalents
Other disclosure matters	36	Related party transactions
	37	Post balance sheet events
	38	Auditor's remuneration
	39	Standard Chartered PLC (Company)
	40	Related undertakings of the Group

 

Page 21

Notes to the financial statements

1. Accounting policies

Statement of compliance

The Group financial statements consolidate Standard Chartered PLC (the Company) and its subsidiaries (together referred to as the Group) and equity account the Group's interests in associates and jointly controlled entities. The parent company financial statements present information about the Company as a separate entity.

The Group financial statements have been prepared in accordance with UK-adopted international accounting standards and International Financial Reporting Standards (IFRS) (Accounting Standards) as adopted by the European Union (EU IFRS). The Company financial statements have been prepared in accordance with UK-adopted international accounting standards as applied in conformity with section 408 of the Companies Act 2006. The financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

There are no significant differences between UK-adopted international accounting standards and EU IFRS.

The following parts of the Risk review and Capital review form part of these financial statements:

a) Risk review: Disclosures marked as 'audited' from the start of the Credit Risk section to the end of Other principal risks in the same section.

b) Capital review: Tables marked as 'audited' from the start of 'CRD Capital base' to the end of 'Movement in total capital', excluding 'Total risk-weighted assets'.

Basis of preparation

The consolidated and Company financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of cash-settled share-based payments, fair value through other comprehensive income, and financial assets and liabilities (including derivatives) at fair value through profit or loss.

The consolidated financial statements are presented in United States dollars ($), being the presentation currency of the Group and functional currency of the Company, and all values are rounded to the nearest million dollars, except when otherwise indicated.

Significant and other accounting estimates and judgement

In determining the carrying amounts of certain assets and liabilities, the Group makes assumptions of the effects of uncertain future events on those assets and liabilities at the balance sheet date. The Group's estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. Further information about key assumptions concerning the future, and other key sources of estimation uncertainty and judgement, are set out in the relevant disclosure notes for the areas set out under the relevant headings below:

Significant accounting estimates and critical judgements

•  Expected credit loss calculations (Note 8)

•  Financial instruments measured at fair value (Note 13)

•  Investments in subsidiary undertakings, joint ventures and associates - China Bohai associate accounting and impairment analysis (Note 32)

Significant accounting estimates and judgements represent those items which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year. Significant accounting estimates and judgements are:

Page 22

Other areas of accounting estimate and judgement

Other areas of accounting estimate and judgement do not meet the definition under IAS 1 of significant accounting estimates or critical accounting judgements, but the recognition of certain material assets and liabilities are based on assumptions and/or are subject to long-term uncertainties. The other areas of accounting estimate and judgement are:

•  Taxation (Note 10)

•  Goodwill and intangible assets - Goodwill impairment and Capitalisation of internally generated software intangibles (Note 9 and Note 17)

•  Provisions for liabilities and charges - Other provisions (Note 24)

•  Legal and regulatory matters (Note 26)

•  Retirement benefit obligations (Note 30)

•  Share-based payments (Note 31)

Climate change impact on the Group's balance sheet

Climate, and the impact of climate on the Group's balance sheet is considered as an area which can impact accounting estimates and judgments through the uncertainty of future events and the impact of that uncertainty on the Group's assets and liabilities. However, the Group has concluded that Climate Change does not have a financially material impact at this time.

The Group has assessed the impact of climate risk on the financial report. This is set out within the Sustainability Overview and Sustainability Review chapter which incorporate the Group's Climate-related Financial Disclosures which align with the recommendations from the Task Force for Climate related Financial Disclosures (TCFD). Further risk disclosure has been provided in the Principal Risks and Uncertainties section of the Annual Report where the Group has described how it manages climate risk, which is integrated across relevant Principal Risk Types (PRTs) and is managed via the ESGR Risk Type framework.

The areas of impact where judgements and the use of estimates have been applied were credit risk and the impact on lending portfolios; ESG features within issued loans and bonds; physical risk on our mortgage lending portfolio; and the corporate plan, in respect of which forward looking cash flows impact the recoverability of certain assets, including of goodwill, deferred tax assets and investments in subsidiary undertakings.

Transition risk, as our clients move to lower carbon emitting revenues, (either by virtue of legislation or changing end customer preference) is considered with reference to client transition pathways and manifests over a longer term than the maturity of the loan book (up to 2050). The setting of net zero targets, which as of this annual report covers our 12 highest emitting sectors, manages transition risk. Net zero targets enable the portfolio managers to work with our clients on their transition and deploy capital to those clients which are engaged and have adequate transition pathways. All of these actions manage the Group's transition risk and engage clients before transition risk manifests itself into credit losses. We have also evaluated transition risk to achieve net zero in our own operations.

While physical risk is included within the majority of our mortgage lending decisions, we have applied scenario analysis against the pathways of different temperature outcomes to examine exposure concentration risk in key markets subject to the extreme risk of floods and storms to assess the acute physical risk, and sea level rise to assess the chronic physical risk. Stranded assets analysis was conducted for residential mortgages to identify properties that are expected to become uninhabitable and/or unusable due to increased frequency and intensity of physical risk events from acute and chronic risks. We assess the physical risk vulnerabilities of our existing sites on a regular basis and for new sites during the onboarding process. Additionally, we assess the impact of climate risk on the classification of financial instruments under IFRS 9, when Environmental, Social or Governance (ESG) triggers may affect the cash flows received by the Group under the contractual terms of the instrument.

The ESGR Risk team has performed a quantitative assessment of the impact of climate risk on the IFRS 9 ECL provision. This assessment has been performed across both the CIB and WRB portfolios. The Climate risk impact assessment on IFRS 9 business as usual ECL has been conducted based on newly developed and enhanced internal climate risk models for corporates across six priority sectors (Oil and Gas, Power, Steel, Mining, Shipping, and Automotive), one Generic model for the remaining corporate sectors and Sovereigns, while the top-down approach developed in 2022 was used for the remaining portfolios. The impact assessment, which primarily focused on transition risk, resulted in only a marginal ECL increase across CIB and WRB, which has been recorded as a management overlay for the 2024 year end.

Page 23

The Group's corporate plan has a 5 year outlook and considers the highest emitting sectors the Group finances. The majority of the Group sector targets are production/physical intensities which allow continued levels of lending as long as the products the client produce have a decreasing carbon cost. For Coal Mining and Oil and Gas, these sectors have absolute targets which represent a decreasing carbon budget. Coal Mining is an immaterial book, while for Oil and Gas lending is being actively monitored towards lower carbon counterparties and technologies. The corporate plan is shorter term than many of the climate scenario outlooks but seeks to capture the nearer term performance as required by recoverability models. The Group has for the third time in the 2025 corporate plan included anticipated credit impairment charges, now across seven sectors (Oil and Gas, Metals and Mining, Power, and Transport, along with Cement, Automobile, and Commercial Real Estate which have been newly added this year). This addition of credit impairment has not in itself, materially impacted the recoverability of assets supported by discounted cash flow models (such as Value in Use) which utilise the Corporate plan.

The Group has progressively strengthened its scenario analysis capabilities with the modelling of Climate Risk impact over a 30-year period across multiple dimensions including scenario data and pathways across CIB and WRB portfolios. While we have taken the first step in our journey to transition from our reliance on vendor models to in-house capabilities, challenges underpin the scenario analysis, such as reliance on nascent methodologies, dependencies on first generation models and data limitations. Notwithstanding these challenges, our work to date, using certain assumptions and proxies, indicates that our business is resilient to all Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and bespoke scenarios that were explored.

The Group, although acknowledging the limitations of current data available, increasing sophistication of models evolving and nascent nature of climate impacts on internal and client assets, considers Climate Risk to have limited quantitative impact in the immediate term and as a longer-term risk is expected to be addressed through its business strategy and financial planning as the Group implements its net zero journey.

IFRS and Hong Kong accounting requirements

As required by the Hong Kong Listing Rules, an explanation of the differences in accounting practices between UK-adopted IFRS and Hong Kong Financial Reporting Standards is required to be disclosed. There would be no significant differences had these accounts been prepared in accordance with Hong Kong Financial Reporting Standards.

Standard Chartered PLC has fully complied with the new treasury share regime introduced under the revised Hong Kong Listing Rules from 11 June 2024 onwards and will continue to comply with the new regime.

New accounting standards in issue but not yet effective

There were no new accounting standards or interpretations that had a material effect on the Group's Financial Statements in 2024.

IAS 21 Amendment - Lack of Exchangeability

In August 2023, the IASB issued amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates to specify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate when exchangeability is lacking. The amendments also require disclosure of information that enables users to understand the impact of a currency not being exchangeable. The amendments will be effective for annual reporting periods beginning on or after 1 January 2025. The amendment is not expected to have a material impact on the Group's financial statements.

IFRS 18 Presentation and Disclosure in Financial Statements

The new standard IFRS 18 was issued in April 2024 and is effective for annual reporting periods beginning on or after January 1, 2027 but earlier application is permitted. This new standard replaces IAS 1 Presentation of Financial Statements and amends IAS 7 Statement of Cash Flows. IFRS 18 introduces three defined categories for income and expenses-operating, investing and financing-to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. IFRS 18 will require disclosure of explanations of company-specific measures that are related to the income statement, referred to as management-defined performance measures. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements or in the notes. The Group will apply IFRS 18 for annual reporting periods beginning on January 1, 2027 and is currently not expected to have a material impact on the Group's financial statements other than a change in the presentation of the primary statements.

Page 24

IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures Amendments

In May 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments which amended requirements related to settling financial liabilities using an electronic payment system and assessing contractual cash flow characteristics of financial assets, including those with environmental, social and governance (ESG)-linked features. The IASB also amended disclosure requirements relating to investments in equity instruments designated at fair value through other comprehensive income and added disclosure requirements for financial instruments with contingent features that do not relate directly to basic lending risks and costs. The amendments will be effective for annual reporting periods beginning on or after 1 January 2026. The amendments are not expected to have a material impact on the Group's financial statements.

Going concern

These financial statements were approved by the Board of directors on 21 February 2025. The directors have made an assessment of the Group's ability to continue as a going concern. This assessment has been made having considered the current macroeconomic and geopolitical headwinds, including:

•  Review of the Group Strategy and Corporate Plan, including the annual budget

•  An assessment of the actual performance to date, loan book quality, credit impairment, legal and regulatory matters, compliance matters, recent regulatory developments

•  Consideration of stress testing performed, including the Group Recovery Plan (RP) which include the application of stressed scenarios. Under the tests and through the range of scenarios, the results of these exercises and the RP demonstrate that the Group has sufficient capital and liquidity to continue as a going concern and meet minimum regulatory capital and liquidity requirements

•  Analysis of the capital position of the Group, including the capital and leverage ratios, and ICAAP which summarises the Group's capital and risk assessment processes, assesses its capital requirements and the adequacy of resources to meet them

•  Analysis of the funding and liquidity position of the Group, including the Internal Liquidity Adequacy Assessment Process (ILAAP), which considers the Group's liquidity position, its framework and whether sufficient liquidity resources are being maintained to meet liabilities as they fall due, was also reviewed. Further, funding and liquidity was considered in the context of the risk appetite metrics, including the LCR ratio

•  The level of debt in issue, including redemptions and issuances during the year, debt falling due for repayment in the next 12 months and further planned debt issuances, including the appetite in the market for the Group's debt

•  The Group's portfolio of debt securities held at amortised cost

•  A detailed review of all principal risks as well as topical and emerging risks

Based on the analysis performed, the directors confirm they are satisfied that the Group has adequate resources to continue in business for a period of at least 12 months from 21 February 2025.

For this reason, the Group continues to adopt the going concern basis of accounting for preparing the financial statements.

2. Segmental information

Basis of preparation

The analysis reflects how the client segments and geographic regions are managed internally. This is described as the Management View (on an underlying basis) and is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. In certain instances this approach is not appropriate and a Financial View is disclosed, that is, the location in which the transaction or balance was booked. Typically, the Financial View is used in areas such as the Market and Liquidity Risk reviews where actual booking location is more important for an assessment. Segmental information is therefore on a Management View unless otherwise stated.

Client segments

The Group's segmental reporting is in accordance with IFRS 8 Operating Segments and is reported consistently with the internal performance framework and as presented to the Group's Management Team.

Page 25

Restructuring items excluded from underlying results

The Group's reported IFRS performance is adjusted for certain items to arrive at alternative performance measures. These items include profits or losses of a capital nature, amounts consequent to investment transactions driven by strategic intent, other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period and items which management and investors would ordinarily identify separately when assessing consistent performance period by period. The alternative performance measures are not within the scope of IFRS and not a substitute for IFRS measures. These adjustments are set out below.

Restructuring loss of $441 million primarily relate to the exits in AME, Aviation finance business and reflect the impact of actions to transform the organisation to improve productivity, primarily additional redundancy charges, simplifying technology platforms and optimising the Group's office space and property footprint, Fit For Growth costs that are primarily severance costs, costs of staff working on FFG initiatives and legal and professional fees. The Group is also reclassifying the movements in the Debit Valuation Adjustment (DVA) into restructuring and other items.

Reconciliations between underlying and reported results are set out in the tables below:

	2024
	Underlying $million	Restructuring³ $million	Net (loss)/Gain on businesses disposed of/ held for sale1 $million	Goodwill impairment⁴ $million	Other items2 $million	DVA $million	Reported $million
Operating income	19,696	103	(232)	-	-	(24)	19,543
Operating expenses	(11,790)	(612)	-	-	(100)	-	(12,502)
Operating profit/(loss) before impairment losses and taxation	7,906	(509)	(232)	-	(100)	(24)	7,041
Credit impairment	(557)	10	-	-	-	-	(547)
Other impairment	(588)	-	-	-	-	-	(588)
Profit from associates and joint ventures	50	58	-	-	-	-	108
Profit/(loss) before taxation	6,811	(441)	(232)	-	(100)	(24)	6,014

 

	2023
Operating income	17,378	362	262	-	-	17	18,019
Operating expenses	(11,136)	(415)	-	-	-	-	(11,551)
Operating profit/(loss) before impairment losses and taxation	6,242	(53)	262	-	-	17	6,468
Credit impairment	(528)	20	-	-	-	-	(508)
Other impairment	(130)	(28)	-	(850)	-	-	(1,008)
Profit from associates and joint ventures	94	47	-	-	-	-	141
Profit/(loss) before taxation	5,678	(14)	262	(850)	-	17	5,093

1 Net loss on businesses disposed of/ held for sale 2024 includes $172 million primarily relating to recycling of FX translation losses from reserves into P&L on the sale of Zimbabwe, $26 million loss on sale of Angola, $19 million loss on Sierra Leone Partial exit and $15 million loss on the Aviation business disposal

2 Other items 2024 include $100 million charge relating to Korea equity linked securities (ELS) portfolio

3 Restructuring Operating expenses 2024 includes $156m of Fit For Growth costs that are primarily severance costs, costs of staff working on FFG initiatives and legal and professional fees

4 Goodwill and other impairment include $850 million impairment charge relating to the Group's investment in its associate China Bohai Bank (Bohai)

Page 26

Underlying performance by client segment

	2024						2023
	Corporate & Investment Banking $million	Wealth & Retail Banking $million	Ventures $million	Central & other items $million	Total $million		Corporate & Investment Banking $million	Wealth & Retail Banking $million	Ventures $million	Central & other items $million	Total $million
Operating income	11,818	7,816	183	(121)	19,696		11,218	7,106	156	(1,102)	17,378
External	10,363	3,328	184	5,821	19,696		8,543	3,902	157	4,776	17,378
Inter-segment	1,455	4,488	(1)	(5,942)	-		2,675	3,204	(1)	(5,878)	-
Operating expenses	(6,033)	(4,589)	(464)	(704)	(11,790)		(5,627)	(4,261)	(429)	(819)	(11,136)
Operating profit/(loss) before impairment losses and taxation	5,785	3,227	(281)	(825)	7,906		5,591	2,845	(273)	(1,921)	6,242
Credit impairment	106	(644)	(74)	55	(557)		(123)	(354)	(85)	34	(528)
Other impairment	(310)	(120)	(18)	(140)	(588)		(32)	(4)	(26)	(68)	(130)
Profit from associates and joint ventures	-	-	(17)	67	50		-	-	(24)	118	94
Underlying profit/(loss) before taxation	5,581	2,463	(390)	(843)	6,811		5,436	2,487	(408)	(1,837)	5,678
Restructuring	(179)	(170)	(3)	(89)	(441)		32	(60)	(4)	18	(14)
Goodwill and other impairment⁴	-	-	-	-	-		-	-	-	(850)	(850)
DVA	(24)	-	-	-	(24)		17	-	-	-	17
Other items³	-	(100)	-	(232)	(332)		262	-	-	-	262
Reported profit/(loss) before taxation	5,378	2,193	(393)	(1,164)	6,014		5,747	2,427	(412)	(2,669)	5,093
Total assets	485,662	122,404	6,399	235,223	849,688		403,058	128,768	4,009	287,009	822,844
Of which: loans and advances to customers	197,608	119,242	1,388	21,319	339,557		189,395	126,117	1,035	28,939	345,486
loans and advances to customers	139,089	119,236	1,388	21,319	281,032		130,897	126,104	1,035	28,939	286,975
loans held at fair value through profit or loss (FVTPL)1	58,519	6	-	-	58,525		58,498	13	-	-	58,511
Total liabilities	476,502	220,501	5,277	96,124	798,404		464,968	200,263	3,096	104,164	772,491
Of which: customer accounts2	297,005	216,476	5,028	4,754	523,263		328,211	195,678	2,825	7,908	534,622

1 Loans held at FVTPL includes $51,441 million (2023: $51,299 million) of reverse repurchase agreements

2 Customer accounts includes $21,772 million (2023: $17,248 million) of FVTPL and $37,002 million (2023: $47,956 million) of repurchase agreements

3 Other items 2024 includes $100 million charge relating to Korea equity linked securities (ELS) portfolio, $172 million primarily relating to recycling of FX translation losses from reserves into P&L on the sale of Zimbabwe, $26 million loss on sale of Angola, $19 million loss on Sierra Leone Partial exit and $15 million loss on the Aviation business disposal

4 Goodwill and other impairment include $850 million impairment charge relating to the Group's investment in its associate China Bohai Bank (Bohai)

Operating income by client segment

	2024						2023
	Corporate & Investment Banking $million	Wealth & Retail Banking $million	Ventures $million	Central & other items $million	Total $million		Corporate & Investment Banking $million	Wealth & Retail Banking $million	Ventures $million	Central & other items $million	Total $million
Underlying versus reported:
Underlying operating income	11,818	7,816	183	(121)	19,696		11,218	7,106	156	(1,102)	17,378
Restructuring	69	23	-	11	103		291	45	-	26	362
DVA	(24)	-	-	-	(24)		17	-	-	-	17
Other items1	-	-	-	(232)	(232)		262	-	-	-	262
Reported operating income	11,863	7,839	183	(342)	19,543		11,788	7,151	156	(1,076)	18,019
Additional segmental income:
Net interest income	2,090	5,175	100	(999)	6,366		4,541	4,970	81	(1,823)	7,769
Net fees and commission income	1,938	1,855	52	(111)	3,734		1,753	1,538	43	(82)	3,252
Net trading and other income	7,835	809	31	768	9,443		5,494	643	32	829	6,998
Reported operating income	11,863	7,839	183	(342)	19,543		11,788	7,151	156	(1,076)	18,019

1 Other items 2024 includes $172 million primarily relating to recycling of FX translation losses from reserves into P&L on the sale of Zimbabwe, $26 million loss on sale of Angola, $19 million loss on Sierra Leone Partial exit and $15 million loss on the Aviation business disposal

 

Page 27

Additional segmental information (reported)

	2024
	Hong Kong $million	Korea $million	China $million	Taiwan $million	Singapore $million	India $million	UAE $million	UK $million	US $million	Other $million	Group $million
Net interest income	790	723	410	177	462	646	369	(1,002)	540	3,251	6,366
Net fees and commission income	726	185	181	212	716	236	99	112	480	787	3,734
Net trading and other income	3,281	177	736	188	1,395	441	369	1,168	268	1,420	9,443
Operating income	4,797	1,085	1,327	577	2,573	1,323	837	278	1,288	5,458	19,543

 

	2023
Net interest income	1,946	684	520	154	937	654	390	(930)	170	3,244	7,769
Net fees and commission income	615	171	149	182	576	221	81	18	441	798	3,252
Net trading and other income	2,052	216	487	214	929	330	330	1,277	263	900	6,998
Operating income	4,613	1,071	1,156	550	2,442	1,205	801	365	874	4,942	18,019

3. Net interest income

Accounting policy

Interest income for financial assets held at either fair value through other comprehensive income or amortised cost, and interest expense on all financial liabilities held at amortised cost is recognised in profit or loss using the effective interest method.

The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. For floating-rate financial instruments, periodic re-estimation of cash flows that reflect the movements in the market rates of interest alters the effective interest rate. Where the estimates of cash flows have been revised, the carrying amount of the financial asset or liability is adjusted to reflect the actual and revised cash flows, discounted at the instruments original effective interest rate. The adjustment is recognised as interest income or expense in the period in which the revision is made as long as the change in estimates is not due to credit issues.

Interest income for financial assets that are either held at fair value through other comprehensive income or amortised cost that have become credit-impaired subsequent to initial recognition (stage 3) and have had amounts written off, is recognised using the credit adjusted effective interest rate. This rate is calculated in the same manner as the effective interest rate except that expected credit losses are included in the expected cash flows. Interest income is therefore recognised on the amortised cost of the financial asset including expected credit losses. Should the credit risk on a stage 3 financial asset improve such that the financial asset is no longer considered credit-impaired, interest income recognition reverts to a computation based on the rehabilitated gross carrying value of the financial asset.

	2024 $million	2023 $million
Balances at central banks	2,520	2,833
Loans and advances to banks	2,368	2,095
Loans and advances to customers	16,179	15,518
Debt securities	5,165	5,005
Other eligible bills	1,495	1,596
Accrued on impaired assets (discount unwind)	135	180
Interest income	27,862	27,227
Of which: financial instruments held at fair value through other comprehensive income	3,773	3,445
Deposits by banks	806	796
Customer accounts1	16,276	14,292
Debt securities in issue	3,610	3,367
Subordinated liabilities and other borrowed funds	744	951
Interest expense on IFRS 16 lease liabilities	60	52
Interest expense	21,496	19,458
Net interest income	6,366	7,769

1 Deposit insurance premiums of $147 million have been reclassified from customer accounts related interest expense to general operating expenses in 2024. The prior year has not been reclassified as it is not deemed material

Page 28

4. Net fees and commission

Accounting policy

The Group can act as trustee or in other Fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. The assets and income arising thereon are excluded from these financial statements, as they are not assets and income of the Group.

The Group applies the following practical expedients:

•      information on amounts of transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations at the end of the reporting period is not disclosed as almost all fee-earning contracts have an expected duration of less than one year

•      promised consideration is not adjusted for the effects of a significant financing component as the period between the Group providing a service and the customer paying for it is expected to be less than one year

•      incremental costs of obtaining a fee-earning contract are recognised upfront in 'Fees and commission expense' rather than amortised, if the expected term of the contract is less than one year

The determination of the services performed for the customer, the transaction price, and when the services are completed depends on the nature of the product with the customer. The main considerations on income recognition by product are as follows:

Transaction Banking

The Group recognises fee income associated with transactional trade and cash management at the point in time the service is provided. The Group recognises income associated with trade contingent risk exposures (such as letters of credit and guarantees) over the period in which the service is provided.

Payment of fees is usually received at the same time the service is provided. In some cases, letters of credit and guarantees issued by the Group have annual upfront premiums, which are amortised on a straight-line basis to fee income over the year.

Global Markets

The Group recognises fee income at the point in time the service is provided. Fee income is recognised for a significant non-lending service when the transaction has been completed and the terms of the contract with the customer entitle the Group to the fee. This includes fees such as structuring and advisory fees. Fees are usually received shortly after the service is provided.

Syndication fees are recognised when the syndication is complete defined as achieving the final approved hold position. Fees are generally received before completion of the syndication, or within 12 months of the transaction date.

Securities services include custody services, fund accounting and administration, and broker clearing. Fees are recognised over the period the custody or fund management services are provided, or as and when broker services are requested.

Wealth Management

Upfront consideration on bancassurance agreements is amortised straight-line over the contractual term. Commissions for bancassurance activities are recorded as they are earned through sales of third-party insurance products to customers. These commissions are received within a short time frame of the commission being earned. Target-linked fees are accrued based on percentage of the target achieved, provided it is assessed as highly probable that the target will be met. Cash payment is received at a contractually specified date after achievement of a target has been confirmed.

Upfront and trailing commissions for managed investment placements are recorded as they are confirmed. Income from these activities is relatively even throughout the period, and cash is usually received within a short time frame after the commission is earned.

Retail Products

The Group recognises most income at the point in time the Group is entitled to the fee, since most services are provided at the time of the customer's request.

Page 29

In most of our retail markets there are circumstances under which fees are waived, income recognition is adjusted to reflect customer's intent to pay the annual fee. The Group defers the fair value of reward points on its credit card reward programmes, and recognises income and costs associated with fulfilling the reward at the time of redemption.

	2024 $million	2023 $million
Fees and commissions income	4,623	4,067
Of which:
Financial instruments that are not fair valued through profit or loss	1,436	1,374
Trust and other fiduciary activities	632	508
Fees and commissions expense	(889)	(815)
Of which:
Financial instruments that are not fair valued through profit or loss	(245)	(169)
Trust and other fiduciary activities	(50)	(52)
Net fees and commission	3,734	3,252

 

	2024						2023
	Corporate & Investment Banking $million	Wealth & Retail Banking $million	Ventures $million	Central & other items $million	Total $million		Corporate & Investment Banking $million	Wealth & Retail Banking $million	Ventures $million	Central & other items $million	Total $million
Transaction Services	1,456	26	-	-	1,482		1,415	25	-	-	1,440
Payments and Liquidity	634	-	-	-	634		567	-	-	-	567
Securities Services	254	-	-	-	254		271	-	-	-	271
Trade & Working Capital	568	26	-	-	594		577	25	-	-	602
Global Banking	937	-	-	-	937		694	-	-	-	694
Lending & Financial Solutions	633	-	-	-	633		499	-	-	-	499
Capital Market & Advisory	304	-	-	-	304		195	-	-	-	195
Global Markets	36	-	-	-	36		55	-	-	-	55
Macro Trading	(3)	-	-	-	(3)		(20)	-	-	-	(20)
Credit Trading	40	-	-	-	40		69	-	-	-	69
Valuation & Other Adj	(1)	-	-	-	(1)		6	-	-	-	6
Wealth solutions	-	1,598	2	-	1,600		-	1,225	-	-	1,225
Investment Products	-	929	2	-	931		-	633	-	-	633
Bancassurance	-	669	-	-	669		-	592	-	-	592
CCPL & Other Unsecured Lending	-	321	42	-	363		-	372	32	-	404
Deposits	-	143	2	-	145		-	163	-	-	163
Mortgages & Other Secured Lending	-	79	-	-	79		-	70	-	-	70
Treasury	-	-	-	(22)	(22)		-	-	-	(15)	(15)
Other Products	-	1	32	(30)	3		-	2	35	(6)	31
Fees and commission income	2,429	2,168	78	(52)	4,623		2,164	1,857	67	(21)	4,067
Fees and commission expense	(491)	(313)	(26)	(59)	(889)		(411)	(319)	(24)	(61)	(815)
Net fees and commission	1,938	1,855	52	(111)	3,734		1,753	1,538	43	(82)	3,252

Upfront bancassurance consideration amounts are amortised on a straight-line basis over the contractual period to which the consideration relates. Deferred income on the balance sheet in respect of these activities is $419 million (31 December 2023: $474 million). Following renegotiation of the contract in 2023, the life of the contract was extended for a further 3 years and the income will be earned evenly till June 2032. For the twelve months ended 31 December 2024, $56 million of fee income was released from deferred income (31 December 2023: $75 million).

5. Net trading income

Accounting policy

Gains and losses arising from changes in the fair value of financial instruments held at fair value through profit or loss are recorded in net trading income in the period in which they arise. This includes contractual interest receivable or payable.

When the initial fair value of a financial instrument held at fair value through profit or loss relies on unobservable inputs, the difference between the initial valuation and the transaction price is amortised to net trading income as the inputs become observable or over the life of the instrument, whichever is shorter. Any unamortised 'day one' gain is released to net trading income if the transaction is terminated.

Page 30

Income is recognised from the sale and purchase of trading positions, margins on market making and customer business and fair value changes.

	2024 $million	2023 $million
Net trading income	9,615	6,292
Significant items within net trading income include:
Gains on instruments held for trading1	7,418	4,625
Gains on financial assets mandatorily at fair value through profit or loss	5,392	4,270
Gains on financial assets designated at fair value through profit or loss	8	10
Losses on financial liabilities designated at fair value through profit or loss	(3,252)	(2,649)

1 Includes $583 million gain (31 December 2023: $299 million loss) from the translation of foreign currency monetary assets and liabilities, out of which $157 million (31 December 2023: $nil) relates to Egypt FX revaluation impact

6. Other operating income

	2024 $million	2023 $million
Other operating income includes:
Rental income from operating lease assets	40	375
Net loss on disposal of fair value through other comprehensive income debt instruments	(237)	(115)
Net loss on amortized cost financial assets	(27)	(94)
Net (loss)/gain on sale of businesses¹	(210)	351
Dividend income	5	15
Other²	257	174
Other operating income	(172)	706

1 2024 includes loss on disposal of Africa subsidiaries $217 million (SCB Zimbabwe Limited: $172 million, SCB Angola S.A.: $26 million and SCB Sierra Leone Limited: $19 million) of which $246 million relates to realization of translation adjustment loss, partly offset by gain of $17 million from disposal of Venture entities (Shoal limited and Autumn life Pte. Ltd), Total cash consideration received was $74 million (SCB Zimbabwe Limited: $24 million, SCB Angola S.A.: $10 million, SCB Sierra Leone Limited: $17 million, Shoal Limited: $17 million and Autumn life Pte. Ltd: $6 million). 2023 includes $309 million gain from the sale of the aviation finance leasing business, $18 million from sale of associate (Metaco SA), $16 million gain from sale of subsidiary ($9 million from Cardspal and $7 million from Kozagi) and $8 million gain from the sale of Jordan one of Africa subsidiary

2 2024 includes IAS 29 adjustment Ghana hyperinflationary impact ($139 million), research and development expenditure credit ($32 million), rebates/incentives received from VISA card ($25 million), Gain on disposal of property plant and equipment ($23 million), mark-to-market gains from deferred compensation income ($17 million), and immaterial balances across other geographies. 2023 mainly includes $59 million tax credit against Research & Development Expenditure, $38 million gain on disposal of premises, $21 million income from VISA sponsorship in Hong Kong, $10 million from gain on lease modification in Hong Kong and $16 million interest income from tax refund in India

7. Operating expenses

	2024 $million	2023 $million
Staff costs:
Wages and salaries	6,567	6,459
Social security costs	246	233
Other pension costs (Note 30)	451	431
Share-based payment costs (Note 31)	334	226
Other staff costs	912	907
	8,510	8,256
Premises and equipment expenses:	401	422
General administrative expenses:
UK bank levy	90	111
Other general administrative expenses	2,375	1,691
	2,465	1,802
Depreciation and amortisation:
Property, plant and equipment:
Premises	299	315
Equipment	128	103
Operating lease assets	-	27
	427	445
Intangibles:
Software	695	625
Acquired on business combinations	4	1
	1,126	1,071
Total operating expenses	12,502	11,551

Other staff costs include redundancy expenses of $186 million (31 December 2023: $106 million). Further costs in this category include training, travel costs and other staff-related costs.

Details of directors' pay, benefits, pensions and benefits and interests in shares are disclosed in the Directors' remuneration report.

Page 31

Transactions with directors, officers and other related parties are disclosed in Note 36.

Operating expenses include research expenditures of $1,187 million (31 December 2023: $996 million), which was recognized as an expense in the year

The UK bank levy is applied to chargeable equity and liabilities on the balance sheet of UK operations. Key exclusions from chargeable equity and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repos secured on certain sovereign debt and liabilities subject to netting. The rates are 0.10 per cent for short-term liabilities and0.05 per cent for long-term liabilities.

8. Credit impairment

Accounting policy

Significant accounting estimates and judgements

The Group's expected credit loss (ECL) calculations are outputs of complex models with a number of underlying assumptions. The significant judgements in determining expected credit loss include:

•      The Group's criteria for assessing if there has been a significant increase in credit risk;

•      Development of expected credit loss models, including the choice of inputs relating to macroeconomic variables;

•      Determining estimates of forward looking macroeconomic forecasts;

•      Evaluation of management overlays and post-model adjustments;

•      Determination of probability weightings for Stage 3 individually assessed provisions

The calculation of credit impairment provisions also involves expert credit judgement to be applied by the credit risk management team based upon counterparty information they receive from various sources including relationship managers and on external market information. Details on the approach for determining expected credit loss can be found in the credit risk section, under IFRS 9 Methodology.

Estimates of forecasts of key macroeconomic variables underlying the expected credit loss calculation can be found within the Risk review, Key assumptions and judgements in determining expected credit loss.

Expected credit losses

An ECL represents the present value of expected cash shortfalls over the residual term of a financial asset, undrawn commitment or financial guarantee.

A cash shortfall is the difference between the cash flows that are due in accordance with the contractual terms of the instrument and the cash flows that the Group expects to receive over the contractual life of the instrument.

Measurement

ECL are computed as unbiased, probability-weighted amounts which are determined by evaluating a range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportable information including that which is forward-looking.

For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default (PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). There may be multiple default events over the lifetime of an instrument. Further details on the components of PD, LGD and EAD are disclosed in the Credit risk section. For less material Retail Banking loan portfolios, the Group has adopted less sophisticated approaches based on historical roll rates or loss rates.

Forward-looking economic assumptions are incorporated into the PD, LGD and EAD where relevant and where they influence credit risk, such as GDP growth rates, interest rates, house price indices and commodity prices among others. These assumptions are incorporated using the Group's most likely forecast for a range of macroeconomic assumptions. These forecasts are determined using all reasonable and supportable information, which includes both internally developed forecasts and those available externally, and are consistent with those used for budgeting, forecasting and capital planning.

 

Page 32

To account for the potential non-linearity in credit losses, multiple forward-looking scenarios are incorporated into the range of reasonably possible outcomes for all material portfolios. For example, where there is a greater risk of downside credit losses than upside gains, multiple forward-looking economic scenarios are incorporated into the range of reasonably possible outcomes, both in respect of determining the PD (and where relevant, the LGD and EAD) and in determining the overall ECL amounts. These scenarios are determined using a Monte Carlo approach centred around the Group's most likely forecast of macroeconomic assumptions.

The period over which cash shortfalls are determined is generally limited to the maximum contractual period for which the Group is exposed to credit risk. However, for certain revolving credit facilities, which include credit cards or overdrafts, the Group's exposure to credit risk is not limited to the contractual period. For these instruments, the Group estimates an appropriate life based on the period that the Group is exposed to credit risk, which includes the effect of credit risk management actions such as the withdrawal of undrawn facilities.

For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert credit judgement.

The estimate of expected cash shortfalls on a collateralised financial instrument reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the costs of obtaining and selling the collateral, regardless of whether foreclosure is deemed probable.

Cash flows from unfunded credit enhancements held are included within the measurement of expected credit losses if they are part of, or integral to, the contractual terms of the instrument (this includes financial guarantees, unfunded risk participations and other non-derivative credit insurance). Although non-integral credit enhancements do not impact the measurement of expected credit losses, a reimbursement asset is recognised to the extent of the ECL recorded.

Cash shortfalls are discounted using the effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired instruments (POCI)) on the financial instrument as calculated at initial recognition or if the instrument has a variable interest rate, the current effective interest rate determined under the contract.

Instruments	Location of expected credit loss provisions
Financial assets held at amortised cost	Loss provisions: netted against gross carrying value1
Financial assets held FVOCI - Debt instruments	Other comprehensive income (FVOCI expected credit loss reserve)2
Loan commitments	Provisions for liabilities and charges3
Financial guarantees	Provisions for liabilities and charges3

1 Purchased or originated credit-impaired assets do not attract an expected credit loss provision on initial recognition. An expected credit loss provision will be recognised only if there is an increase in expected credit losses from that considered at initial recognition

2 Debt and treasury securities classified as fair value through other comprehensive income (FVOCI) are held at fair value on the face of the balance sheet. The expected credit loss attributed to these instruments is held as a separate reserve within other comprehensive income (OCI) and is recycled to the profit and loss account along with any fair value measurement gains or losses held within FVOCI when the applicable instruments are derecognised

3 Expected credit loss on loan commitments and financial guarantees is recognised as a liability provision. Where a financial instrument includes both a loan (i.e. financial asset component) and an undrawn commitment (i.e. loan commitment component), and it is not possible to separately identify the expected credit loss on these components, expected credit loss amounts on the loan commitment are recognised together with expected credit loss amounts on the financial asset. To the extent the combined expected credit loss exceeds the gross carrying amount of the financial asset, the expected credit loss is recognised as a liability provision

Recognition

12 months expected credit losses (stage 1)

Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent the lifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheet date. Expected credit losses continue to be determined on this basis until there is either a significant increase in the credit risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered to exhibit a significant increase in credit risk, expected credit losses will revert to being determined on a 12-month basis.

Significant increase in credit risk (Stage 2)

Significant increase in credit risk is assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after taking into account the passage of time). Significant does not mean statistically significant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of default is significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends on the type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired will always be considered to have experienced a significant increase in credit risk. For less material portfolios where a loss rate or roll rate approach is applied to compute expected credit loss, significant increase in credit risk is primarily based on 30 days past due.

Page 33

Quantitative factors include an assessment of whether there has been significant increase in the forward-looking probability of default (PD) since origination. A forward-looking PD is one that is adjusted for future economic conditions to the extent these are correlated to changes in credit risk. We compare the residual lifetime PD at the balance sheet date to the residual lifetime PD that was expected at the time of origination for the same point in the term structure and determine whether both the absolute and relative change between the two exceeds predetermined thresholds. To the extent that the differences between the measures of default outlined exceed the defined thresholds, the instrument is considered to have experienced a significant increase in credit risk.

Qualitative factors assessed include those linked to current credit risk management processes, such as lending placed on non-purely precautionary early alert (and subject to closer monitoring).

A non-purely precautionary early alert account is one which exhibits risk or potential weaknesses of a material nature requiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded. Indicators could include a rapid erosion of position within the industry, concerns over management's ability to manage operations, weak/deteriorating operating results, liquidity strain and overdue balances among other factors.

Credit-impaired (or defaulted) exposures (Stage 3)

Financial assets that are credit-impaired (or in default) represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are also considered to be credit-impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect of several events may cause financial assets to become credit-impaired.

•      Evidence that a financial asset is credit-impaired includes observable data about the following events:

•      Significant financial difficulty of the issuer or borrower;

•      Breach of contract such as default or a past due event;

•      For economic or contractual reasons relating to the borrower's financial difficulty, the lenders of the borrower have granted the borrower concession/s that lenders would not otherwise consider. This would include forbearance actions;

•      Pending or actual bankruptcy or other financial reorganisation to avoid or delay discharge of the borrower's obligation/s;

•      The disappearance of an active market for the applicable financial asset due to financial difficulties of the borrower;

•      Purchase or origination of a financial asset at a deep discount that reflects incurred credit losses

Lending commitments to a credit-impaired obligor that have not yet been drawn down are included to the extent that the commitment cannot be withdrawn. Loss provisions against credit-impaired financial assets are determined based on an assessment of the present value of expected cash shortfalls (discounted at the instrument's original effective interest rate) under a range of scenarios, including the realisation of any collateral held where appropriate. The Group's definition of default is aligned with the regulatory definition of default as set out in the UK's onshored capital requirements regulations (Art 178).

Expert credit judgement

For Corporate & Investment Banking and Private Banking, borrowers are graded by credit risk management on a credit grading (CG) scale from CG1 to CG14. Once a borrower starts to exhibit credit deterioration, it will move along the credit grading scale in the performing book and when it is classified as CG12 (which is a qualitative trigger for significant increase in credit risk the credit assessment and oversight of the loan will normally be performed by Stressed Assets Risk (SAR).

Borrowers graded CG12 exhibit well-defined weaknesses in areas such as management and/or performance but there is no current expectation of a loss of principal or interest in the likely scenario. Where the impairment assessment indicates that there will be a loss of principal on a loan in the likely scenario, the borrower is graded a CG14 while borrowers of other credit-impaired loans are graded CG13. Instruments graded CG13 or CG14 are regarded as stage 3.

 

Page 34

For individually significant financial assets within stage 3, SAR will consider all judgements that have an impact on the expected future cash flows of the asset. These include: the business prospects, industry and geopolitical climate of the customer, quality of realisable value of collateral, the Group's legal position relative to other claimants and any renegotiation/ forbearance/ modification options. The future cash flow calculation involves significant judgements and estimates. As new information becomes available and further negotiations/ forbearance measures are taken the estimates of the future cash flows will be revised, and will have an impact on the future cash flow analysis.

For financial assets which are not individually significant, such as the Retail Banking portfolio or small business loans, which comprise a large number of homogenous loans that share similar characteristics, statistical estimates and techniques are used, as well as credit scoring analysis.

Consumer and Business Banking clients are considered credit-impaired where they are more 90 days past due, or if the borrower files for bankruptcy or other forbearance programme, the borrower is deceased or the business is closed in the case of a small business, or if the borrower surrenders the collateral, or there is an identified fraud on the account. Additionally, if the account is unsecured and the borrower has other credit accounts with the Group that are considered credit-impaired, the account may be also be credit-impaired.

Techniques used to compute impairment amounts use models which analyse historical repayment and default rates over a time horizon. Where various models are used, judgement is required to analyse the available information provided and select the appropriate model or combination of models to use.

Expert credit judgement is also applied to determine whether any post-model adjustments are required for credit risk elements which are not captured by the models.

Modified financial instruments

Where the original contractual terms of a financial asset have been modified for credit reasons and the instrument has not been derecognised (an instrument is derecognised when a modification results in a change in cash flows that the Group would consider substantial), the resulting modification loss is recognised within credit impairment in the income statement with a corresponding decrease in the gross carrying value of the asset. If the modification involved a concession that the bank would not otherwise consider, the instrument is considered to be credit-impaired and is considered forborne.

Expected credit loss for modified financial assets that have not been derecognised and are not considered to be credit-impaired will be recognised on a 12-month basis, or a lifetime basis, if there is a significant increase in credit risk. These assets are assessed (by comparison to the origination date) to determine whether there has been a significant increase in credit risk subsequent to the modification. Although loans may be modified for non-credit reasons, a significant increase in credit risk may occur. In addition to the recognition of modification gains and losses, the revised carrying value of modified financial assets will impact the calculation of expected credit losses, with any increase or decrease in expected credit loss recognised within impairment.

Forborne loans

Forborne loans are those loans that have been modified in response to a customer's financial difficulties. Forbearance strategies assist clients who are temporarily in financial distress and are unable to meet their original contractual repayment terms. Forbearance can be initiated by the client, the Group or a third-party including government sponsored programmes or a conglomerate of credit institutions. Forbearance may include debt restructuring such as new repayment schedules, payment deferrals, tenor extensions, interest only payments, lower interest rates, forgiveness of principal, interest or fees, or relaxation of loan covenants.

Forborne loans that have been modified (and not derecognised) on terms that are not consistent with those readily available in the market and/or where we have granted a concession compared to the original terms of the loans are considered credit-impaired if there is a detrimental impact on cash flows. The modification loss (see Classification and measurement - Modifications) is recognised in the profit or loss within credit impairment and the gross carrying value of the loan reduced by the same amount. The modified loan is disclosed as 'Loans subject to forbearance - credit-impaired'.

Loans that have been subject to a forbearance modification, but which are not considered credit-impaired (not classified as CG13 or CG14), are disclosed as 'Forborne - not credit-impaired'. This may include amendments to covenants within the contractual terms.

Page 35

Write-offs of credit-impaired instruments and reversal of impairment

To the extent a financial debt instrument is considered irrecoverable, the applicable portion of the gross carrying value is written off against the related loan provision. Such loans are written off after all the necessary procedures have been completed, it is decided that there is no realistic probability of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for credit impairment in the income statement.

Loss provisions on purchased or originated credit-impaired instruments (POCI)

The Group measures expected credit loss on a lifetime basis for POCI instruments throughout the life of the instrument. However, expected credit loss is not recognised in a separate loss provision on initial recognition for POCI instruments as the lifetime expected credit loss is inherent within the gross carrying amount of the instruments. The Group recognises the change in lifetime expected credit losses arising subsequent to initial recognition in the income statement and the cumulative change as a loss provision. Where lifetime expected credit losses on POCI instruments are less than those at initial recognition, then the favourable differences are recognised as impairment gains in the income statement (and as impairment loss where the expected credit losses are greater).

Improvement in credit risk/curing

For financial assets that are credit-impaired (stage 3), a transfer to stage 2 or stage 1 is only permitted where the instrument is no longer considered to be credit-impaired. An instrument will no longer be considered credit-impaired when there is no shortfall of cash flows compared to the original contractual terms.

For financial assets within stage 2, these can only be transferred to stage 1 when they are no longer considered to have experienced a significant increase in credit risk.

Where significant increase in credit risk was determined using quantitative measures, the instruments will automatically transfer back to stage 1 when the original PD based transfer criteria are no longer met. Where instruments were transferred to stage 2 due to an assessment of qualitative factors, the issues that led to the reclassification must be cured before the instruments can be reclassified to stage 1. This includes instances where management actions led to instruments being classified as stage 2, requiring that action to be resolved before loans are reclassified to stage 1.

A forborne loan can only be removed from being disclosed as forborne if the loan is performing (stage 1 or 2) and a further two-year probation period is met.

In order for a forborne loan to become performing, the following criteria have to be satisfied:

•      At least a year has passed with no default based upon the forborne contract terms

•      The customer is likely to repay its obligations in full without realising security

•      The customer has no accumulated impairment against amount outstanding (except for ECL)

Subsequent to the criteria above, a further two-year probation period has to be fulfilled, whereby regular payments are made by the customer and none of the exposures to the customer are more than 30 days past due.

	2024 $million	2023 $million
Net credit impairment on loans and advances to banks and customers	590	606
Net credit impairment on debt securities1	(58)	(50)
Net credit impairment relating to financial guarantees and loan commitments	18	(48)
Net credit impairment relating to other financial assets	(3)	-
Credit impairment1	547	508

1 Includes impairment release of $14 million (2023: $1 million charge) on originated credit-impaired debt securities

Page 36

9. Goodwill, property, plant and equipment and other impairment

Accounting policy

Refer to the below referenced notes for the relevant accounting policy.

	2024 $million	2023 $million
Impairment of property, plant and equipment (Note 18)	11	12
Impairment of other intangible assets (Note 17)	561	112
Other	16	884¹
Goodwill, fixed assets and other impairment	588	1,008

1   Includes $850 million impairment charge relating to the Group's investment in its associate China Bohai Bank (Bohai), reflecting Bohai's lower reported net profit in 2023, as well as banking industry challenges and property market uncertainties in China, that may impact Bohai's future profitability

10. Taxation

Accounting policy

Income tax payable on profits is based on the applicable tax law in each jurisdiction and is recognised as an expense in the period in which profits arise.

Deferred tax is provided on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted as at the balance sheet date, and that are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Where permitted, deferred tax assets and liabilities are offset on an entity basis and not by component of deferred taxation.

Current and deferred tax relating to items which are charged or credited directly to equity, is credited or charged directly to equity and is subsequently recognised in the income statement together with the current or deferred gain or loss.

Other accounting estimates and judgements

•      Determining the Group's tax charge for the year involves estimation and judgement, which includes an interpretation of local tax laws and an assessment of whether the tax authorities will accept the position taken. These judgements take account of external advice where appropriate, and the Group's view on settling with the relevant tax authorities

•      The Group provides for current tax liabilities at the best estimate of the amount that is expected to be paid to the tax authorities where an outflow is probable. In making its estimates the Group assumes that the tax authorities will examine all the amounts reported to them and have full knowledge of all relevant information

•      The recoverability of the Group's deferred tax assets is based on management's judgement of the availability of future taxable profits against which the deferred tax assets will be utilised. In preparing management forecasts the effect of applicable laws and regulations relevant to the utilisation of future taxable profits have been considered.

The following table provides analysis of taxation charge in the year:

	2024 $million	2023 $million
The charge for taxation based upon the profit for the year comprises:
Current tax:
United Kingdom corporation tax at 25 per cent (2023: 23.5 per cent):
Current tax charge on income for the year	16	(48)
Adjustments in respect of prior years (including double tax relief)	1	14
Foreign tax:
Current tax charge on income for the year	1,752	1,695
Adjustments in respect of prior years	(8)	(11)
	1,761	1,650
Deferred tax:
Origination/reversal of temporary differences	198	(22)
Adjustments in respect of prior years	13	3
	211	(19)
Tax on profits on ordinary activities	1,972	1,631
Effective tax rate	32.8%	32.0%

Page 37

The tax charge for the year of $1,972 million (31 December 2023: $1,631 million) on a profit before tax of $6,014 million (31 December 2023: $5,093 million) reflects the impact of tax losses for which no deferred tax assets are recognised, non-creditable withholding taxes and other taxes and non-deductible expenses. These are partly offset by countries with tax rates lower than the UK, the most significant of which are Hong Kong and Singapore, and tax exempt income.

Foreign tax includes current tax of $272 million (31 December 2023: $201 million) on the profits assessable in Hong Kong. Deferred tax includes origination or reversal of temporary differences of $8 million (31 December 2023: $nil million) provided at a rate of 16.5 per cent (31 December 2023: 16.5 per cent) on the profits assessable in Hong Kong.

The Group falls within the Pillar Two global minimum tax rules which apply in the UK from 1 January 2024. The IAS 12 exception to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes has been applied. The current tax charge for the period ended 31 December 2024 includes $17m in respect of Pillar Two income taxes (31 December 2023: N/A).

Tax rate: The tax charge for the year is higher than the charge at the rate of corporation tax in the UK, 25 per cent. The differences are explained below:

	2024			2023
	$million	%		$million	%
Profit on ordinary activities before tax	6,014			5,093
Tax at 25 per cent (2023: 23.5 per cent)	1,504	25.0		1,197	23.5
Lower tax rates on overseas earnings	(425)	(7.1)		(330)	(6.5)
Higher tax rates on overseas earnings	269	4.5		306	6.0
Tax at domestic rates applicable where profits earned	1,348	22.4		1,173	23.0
Non-creditable withholding taxes and other taxes	260	4.3		85	1.7
Tax exempt income	(133)	(2.2)		(131)	(2.6)
Share of associates and joint ventures	(6)	(0.1)		(14)	(0.3)
Non-deductible expenses	243	4.0		219	4.3
Bank levy	23	0.4		26	0.5
Non-taxable losses on investments1	35	0.6		64	1.3
Payments on financial instruments in reserves	(72)	(1.2)		(68)	(1.3)
Deferred tax not recognised	298	5.0		278	5.4
Deferred tax rate changes	(3)	-		(1)	-
Adjustments to tax charge in respect of prior years	6	0.1		6	0.1
Other items	(27)	(0.5)		(6)	(0.1)
Tax on profit on ordinary activities	1,972	32.8		1,631	32.0

1   2024 Includes tax impact of $55m (2023:$nil) relating to loss on sale of subsidiaries in Africa and $nil relating to China Bohai impairment (2023:$140m).

Factors affecting the tax charge in future years: the Group's tax charge, and effective tax rate in future years could be affected by several factors including acquisitions, disposals and restructuring of our businesses, the mix of profits across jurisdictions with different statutory tax rates, changes in tax legislation and tax rates and resolution of uncertain tax positions.

The evaluation of uncertain tax positions involves an interpretation of local tax laws which could be subject to challenge by a tax authority, and an assessment of whether the tax authorities will accept the position taken. The Group does not currently consider that assumptions or judgements made in assessing tax liabilities have a significant risk of resulting in a material adjustment within the next financial year.

Tax recognised in other comprehensive income	2024				2023
	Current tax $million	Deferred tax $million	Total $million		Current tax $million	Deferred tax $million	Total $million
Items that will not be reclassified to income statement	(16)	113	97		-	(107)	(107)
Own credit adjustment	1	49	50		-	(49)	(49)
Equity instruments at fair value through other comprehensive income	(17)	76	59		-	(69)	(69)
Retirement benefit obligations	-	(12)	(12)		-	11	11
Items that may be reclassed subsequently to income statement	(7)	(30)	(37)		-	(129)	(129)
Debt instruments at fair value through other comprehensive income	(7)	(44)	(51)		-	(17)	(17)
Cash flow hedges	-	14	14		-	(112)	(112)
Total tax credit/(charge) recognised in equity	(23)	83	60		-	(236)	(236)

Page 38

 

Current tax: The following are the movements in current tax during the year:

Current tax comprises:	2024 $million	2023 $million
Current tax assets	484	503
Current tax liabilities	(811)	(583)
Net current tax opening balance	(327)	(80)
Movements in income statement	(1,761)	(1,650)
Movements in other comprehensive income	(23)	-
Taxes paid	2,045	1,367
Other movements	3	36
Net current tax balance as at 31 December	(63)	(327)
Current tax assets	663	484
Current tax liabilities	(726)	(811)
Total	(63)	(327)

Deferred tax: The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the year:

Deferred tax comprises:	At 1 January 2024 $million	Exchange & other adjustments $million	(Charge)/credit to profit $million	(Charge)/credit to equity $million	At 31 December 2024 $million
Accelerated tax depreciation	(424)	7	40	(3)	(380)
Impairment provisions on loans and advances	286	(2)	(94)	-	190
Tax losses carried forward	97	(24)	1	-	74
Equity Instruments at Fair value through other comprehensive income	(144)	6	-	76	(62)
Debt Instruments at Fair value through other comprehensive income	27	3	(16)	(44)	(30)
Cash flow hedges	(25)	2	-	14	(9)
Own credit adjustment	(71)	26	-	49	4
Retirement benefit obligations	4	(5)	6	(12)	(7)
Share-based payments	43	(1)	12	-	54
Other temporary differences	139	(1)	(160)	35	13
Net deferred tax assets	(68)	11	(211)	115	(153)

 

	At 1 January 2023 $million	Exchange & other adjustments $million	(Charge)/credit to profit $million	(Charge)/credit to equity $million	At 31 December 2023 $million
Deferred tax comprises:
Accelerated tax depreciation	(589)	236	(71)	-	(424)
Impairment provisions on loans and advances	334	(20)	(28)	-	286
Tax losses carried forward	212	(106)	(9)	-	97
Equity Instruments at Fair value through other comprehensive income	(74)	(1)	-	(69)	(144)
Debt Instruments at Fair value through other comprehensive income	61	(14)	(3)	(17)	27
Cash flow hedges	89	(2)	-	(112)	(25)
Own credit adjustment	5	(27)	-	(49)	(71)
Retirement benefit obligations	2	2	(11)	11	4
Share-based payments	36	-	7	-	43
Other temporary differences	(11)	16	134	-	139
Net deferred tax assets	65	84	19	(236)	(68)

Page 39

Deferred tax comprises assets and liabilities as follows:

	2024				2023
	Total $million	Asset $million	Liability $million		Total $million	Asset $million	Liability $million
Deferred tax comprises:
Accelerated tax depreciation	(380)	19	(399)		(424)	3	(427)
Impairment provisions on loans and advances	190	139	51		286	282	4
Tax losses carried forward	74	51	23		97	49	48
Equity Instruments at Fair value through other comprehensive income	(62)	(12)	(50)		(144)	(1)	(143)
Debt Instruments at Fair value through other comprehensive income	(30)	(14)	(16)		27	29	(2)
Cash flow hedges	(9)	-	(9)		(25)	12	(37)
Own credit adjustment	4	4	-		(71)	(1)	(70)
Retirement benefit obligations	(7)	16	(23)		4	13	(9)
Share-based payments	54	12	42		43	9	34
Other temporary differences	13	199	(186)		139	307	(168)
	(153)	414	(567)		(68)	702	(770)

The recoverability of the Group's deferred tax assets is based on management's judgement of the availability of future taxable profits against which the deferred tax assets will be utilised. The Group's total deferred tax assets include $74 million relating to tax losses carried forward, of which $23 million arises in legal entities with offsetting deferred tax liabilities. The remaining deferred tax assets on losses of $51 million are forecast to be recovered before expiry and within five years.

Unrecognised deferred tax

	Net 2024 $million	Gross 2024 $million	Net 2023 $million	Gross 2023 $million
No account has been taken of the following potential deferred tax assets/(liabilities):
Withholding tax on unremitted earnings from overseas subsidiaries and associates	(611)	(6,827)	(653)	(7,685)
Tax losses	2,494	10,414	2,242	9,326
Held over gains on incorporation of overseas branches	(360)	(1,366)	(366)	(1,389)
Other temporary differences	356	1,363	397	1,516

11. Dividends

The Board considers a number of factors prior to dividend declaration which includes the rate of recovery in the Group's financial performance, the macroeconomic environment, and opportunities to further invest in our business and grow profitably in our markets.

Dividends on equity instruments are recognized as a liability once they have been declared and no longer at the discretion of the directors, and in certain situations, approved by shareholders.

Ordinary equity shares

	2024			2023
	Cents per share	$million		Cents per share	$million
2023/2022 final dividend declared and paid during the year	21	551		14	401
2024/2023 interim dividend declared and paid during the year	9	229		6	167

Dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders. Accordingly, the final ordinary equity share dividends set out above relate to the respective prior years.

2024 recommended final ordinary equity share dividend

The 2024 final ordinary equity share dividend recommended by the Board is 28 cents per share. The financial statements for the year ended 31 December 2024 do not reflect this dividend as this will be accounted for in shareholders' equity as an appropriation of retained profits in the year ending 31 December 2025.

The dividend will be paid in either pounds sterling, Hong Kong dollars or US dollars on 19 May 2025 to shareholders on the UK and HK register of members at the close of business in the UK on 28 March 2025.

Page 40

Preference shares and Additional Tier 1 securities

Dividends on these preference shares and securities classified as equity are recorded in the period in which they are declared.

	2024 $million	2023 $million
Non-cumulative redeemable preference shares:
7.014 per cent preference shares of $5 each	53	53
Floating rate preference shares of $5 each¹	54	50
	107	103
Additional Tier 1 securities: fixed rate resetting perpetual subordinated contingent convertible securities	350	349
	457	452

1 Floating rate is based on Secured Overnight Financing Rate (SOFR), average rate paid for floating preference shares is 7.21% (2023: 6.62%)

12. Earnings per ordinary share

Accounting policy

The Group also measures earnings per share on an underlying basis. This differs from earnings defined in IAS 33 Earnings per share. Underlying earnings is profit/(loss) attributable to ordinary shareholders adjusted for profits or losses of a capital nature; amounts consequent to investment transactions driven by strategic intent; and other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the year.

The table below provides the basis of underlying earnings.

	2024 $million	2023 $million
Profit for the period attributable to equity holders	4,042	3,462
Non-controlling interest	8	7
Dividend payable on preference shares and AT1 classified as equity	(457)	(452)
Profit for the period attributable to ordinary shareholders	3,593	3,017
Items normalised¹:
Restructuring	441	14
Goodwill & other impairment	-	850
Net loss/(gain) on sale of businesses	232	(262)
DVA	24	(17)
Other items	100	-
Tax on normalised items	(114)	(21)
Underlying profit attributable to ordinary shareholders	4,276	3,581
Basic - weighted average number of shares (millions)	2,543	2,778
Diluted - weighted average number of shares (millions)	2,610	2,841
Basic earnings per ordinary share (cents)	141.3	108.6
Diluted earnings per ordinary share (cents)	137.7	106.2
Underlying basic earnings per ordinary share (cents)	168.1	128.9
Underlying diluted earnings per ordinary share (cents)	163.8	126.0

1 Refer note 2 segmental information for normalised items

The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the basic weighted average number of shares excluding treasury shares held in employees benefit trust. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effects of all expected dilutive potential ordinary shares held in respect of SC PLC totalling 59 million (2023: 56 million). The total number of share options outstanding, under schemes considered to be potentially dilutive, was 7 million (2023: 7 million). These options have strike prices ranging from $3.93 to $7.64.

Of the total number of employee share options and share awards at 31 December 2024 there were nil share options and share awards which were anti-dilutive.

The 235 million decrease (2023: 188 million decrease) in the basic weighted average number of shares is primarily due to the impact of the share buyback programmes completed in the year.

Page 41

13. Financial instruments

Classification and measurement

Accounting policy

Financial assets held at amortised cost and fair value through other comprehensive income

Debt instruments held at amortised cost or held at FVOCI have contractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI) characteristics.

In assessing whether the contractual cash flows have SPPI characteristics, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:

•      Contingent events that would change the amount and timing of cash flows

•      Leverage features

•      Prepayment and extension terms

•      Terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements)

•      Features that modify consideration of the time value of money - e.g. periodical reset of interest rates

Whether financial assets are held at amortised cost or at FVOCI depends on the objectives of the business models under which the assets are held. A business model refers to how the Group manages financial assets to generate cash flows.

The Group makes an assessment of the objective of a business model in which an asset is held at the individual product business line, and where applicable within business lines depending on the way the business is managed and information is provided to management. Factors considered include:

•      How the performance of the product business line is evaluated and reported to the Group's management

•      How managers of the business model are compensated, including whether management is compensated based on the fair value of assets or the contractual cash flows collected

•      The risks that affect the performance of the business model and how those risks are managed

•      The frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity

The Group's business model assessment is as follows:

Business model	Business objective	Characteristics	Businesses	Products
Hold to collect	Intent is to originate financial assets and hold them to maturity, collecting the contractual cash flows over the term of the instrument	•  Providing financing and originating assets to earn interest income as primary income stream •  Performing credit risk management activities •  Costs include funding costs, transaction costs and impairment losses	•  Global Banking •  Transaction Banking •  Retail Lending •  Treasury Markets (Loans and Borrowings)	•  Loans and advances •  Debt securities
Hold to collect and sell	Business objective met through both hold to collect and by selling financial assets	•  Portfolios held for liquidity needs; or where a certain interest yield profile is maintained; or that are normally rebalanced to achieve matching of duration of assets and liabilities •  Income streams come from interest income, fair value changes, and impairment losses	•  Treasury Markets	•  Debt securities
Fair value through profit or loss	All other business objectives, including trading and managing financial assets on a fair value basis	•  Assets held for trading •  Assets that are originated, purchased, and sold for profit taking or underwriting activity •  Performance of the portfolio is evaluated on a fair value basis •  Income streams are from fair value changes or trading gains or losses	•  Treasury Markets •  All other business lines	•  Derivatives •  Equity shares •  Trading portfolios •  Reverse repos •  Bond and Loan Syndication

Page 42

Financial assets which have SPPI characteristics and that are held within a business model whose objective is to hold financial assets to collect contractual cashflows (hold to collect) are recorded at amortised cost. Conversely, financial assets which have SPPI characteristics but are held within a business model whose objective is achieved by both collecting contractual cashflows and selling financial assets (Hold to collect and sell) are classified as held at FVOCI. Both hold to collect and hold to collect and sell business models involve holding financial assets to collect the contractual cashflows. However, the business models are distinct by reference to the frequency and significance that asset sales play in meeting the objective under which a particular group of financial assets is managed. Hold to collect business models are characterised by asset sales that are incidental to meeting the objectives under which a group of assets is managed. Sales of assets under a hold to collect business model can be made to manage increases in the credit risk of financial assets but sales for other reasons should be infrequent or insignificant. Cashflows from the sale of financial assets under a hold to collect and sell business model by contrast are integral to achieving the objectives under which a particular group of financial assets are managed. This may be the case where frequent sales of financial assets are required to manage the Group's daily liquidity requirements or to meet regulatory requirements to demonstrate liquidity of financial instruments. Sales of assets under hold to collect and sell business models are therefore both more frequent and more significant in value than those under the hold to collect model.

Equity instruments designated as held at FVOCI

Non-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designated at initial recognition as held at FVOCI on an instrument-by-instrument basis. Dividends received are recognised in profit or loss. Gains and losses arising from changes in the fair value of these instruments, including foreign exchange gains and losses, are recognised directly in equity and are never reclassified to profit or loss even on derecognition.

Mandatorily classified at fair value through profit or loss

Financial assets and liabilities which are mandatorily held at fair value through profit or loss are split between two subcategories as follows:

Trading, including:

•      Financial assets and liabilities held for trading, which are those acquired principally for the purpose of selling in the short-term

•      Derivatives

Non-trading mandatorily at fair value through profit or loss, including:

•      Instruments in a business which has a fair value business model (see the Group's business model assessment) which are not trading or derivatives

•      Hybrid financial assets that contain one or more embedded derivatives

•      Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPI characteristics

•      Equity instruments that have not been designated as held at FVOCI

•      Financial liabilities that constitute contingent consideration in a business combination

Designated at fair value through profit or loss

Financial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on a different basis ('accounting mismatch').

Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair value basis or have an embedded derivative where the Group is not able to separately value, and thus bifurcate, the embedded derivative component.

Financial liabilities held at amortised cost

Financial liabilities that are not financial guarantees or loan commitments and that are not classified as financial liabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

Page 43

Preference shares which carry a mandatory coupon that represents a market rate of interest at the issue date, or which are redeemable on a specific date or at the option of the shareholder are classified as financial liabilities and are presented in other borrowed funds. The dividends on these preference shares are recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.

Financial guarantee contracts and loan commitments

The Group issues financial guarantee contracts and loan commitments in return for fees. Financial guarantee contracts and any loan commitments issued at below-market interest rates are initially recognised at their fair value as a financial liability, and subsequently measured at the higher of the initial value less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers and their expected credit loss provision. Loan commitments may be designated at fair value through profit or loss where that is the business model under which such contracts are held.

Fair value of financial assets and liabilities

The fair value of financial instruments is generally measured on the basis of the individual financial instrument. However, when a group of financial assets and financial liabilities is managed on the basis of its net exposure to either market risk or credit risk, the fair value of the group of financial instruments is measured on a net basis.

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If the market for a financial instrument, and for unlisted securities, is not active, the Group establishes fair value by using valuation techniques.

Initial recognition

Regular way purchases and sales of financial assets held at fair value through profit or loss, and held at fair value through other comprehensive income are initially recognised on the trade date (the date on which the Group commits to purchase or sell the asset). Loans and advances and other financial assets held at amortised cost are recognised on the settlement date (the date on which cash is advanced to the borrowers).

All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directly attributable transaction costs for financial assets and liabilities which are not subsequently measured at fair value through profit or loss.

In certain circumstances, the initial fair value may be based on a valuation technique which may lead to the recognition of profits or losses at the time of initial recognition. However, these profits or losses can only be recognised when the valuation technique used is based solely on observable market data. In those cases where the initially recognised fair value is based on a valuation model that uses unobservable inputs, the difference between the transaction price and the valuation model is not recognised immediately in the income statement, it will be recognised in profit or loss following the passage of time, or as the inputs become observable, or the transaction matures or is terminated.

Subsequent measurement

Financial assets and financial liabilities held at amortised cost

Financial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using the effective interest method (see 'Interest income and expense'). Foreign exchange gains and losses are recognised in the income statement.

Where a financial instrument carried at amortised cost is the hedged item in a qualifying fair value hedge relationship, its carrying value is adjusted by the fair value gain or loss attributable to the hedged risk.

Financial assets held at FVOCI

Debt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortised cost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and are accumulated in equity. On derecognition, the cumulative fair value gains or losses, net of the cumulative expected credit loss reserve, are transferred to the profit or loss.

Page 44

Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. On derecognition, the cumulative reserve is transferred to retained earnings and is not recycled to profit or loss.

Financial assets and liabilities held at fair value through profit or loss

Gains and losses arising from changes in fair value, including contractual interest income or expense, recorded in the net trading income line in the profit or loss.

Derecognition of financial instruments

Financial assets which are subject to commercial refinancing where the loan is priced to the market with no payment related concessions regardless of form of legal documentation or nature of lending will be derecognised. Where the Group's rights to the cash flows under the original contract have expired, the old loan is derecognised and the new loan is recognised at fair value. For all other modifications for example forborne loans or restructuring, whether or not a change in the cash flows is 'substantially different' is judgemental and will be considered on a case-by-case basis, taking into account all the relevant facts and circumstances.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss except for equity instruments elected FVOCI (see above) and cumulative fair value adjustments attributable to the credit risk of a liability, that are held in other comprehensive income.

Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when the obligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However, where a financial liability has been modified, it is derecognised if the difference between the modified cash flows and the original cash flows is more than 10 per cent, or if less than 10 per cent, the Group will perform a qualitative assessment to determine whether the terms of the two instruments are substantially different.

If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liability and the consideration paid is included in 'Other income' except for the cumulative fair value adjustments attributable to the credit risk of a liability that are held in Other comprehensive income, which are never recycled to the profit or loss.

Modified financial instruments

Financial assets and financial liabilities whose original contractual terms have been modified, including those loans subject to forbearance strategies, are considered to be modified instruments. Modifications may include changes to the tenor, cash flows and or interest rates among other factors.

Where derecognition of financial assets is appropriate (see Derecognition), the newly recognised residual loans are assessed to determine whether the assets should be classified as purchased or originated credit-impaired assets (POCI).

Where derecognition is not appropriate, the gross carrying amount of the applicable instruments is recalculated as the present value of the renegotiated or modified contractual cash flows discounted at the original effective interest rate (or credit adjusted effective interest rate for POCI financial assets). The difference between the recalculated values and the pre-modified gross carrying values of the instruments are recorded as a modification gain or loss in the profit or loss.

Gains and losses arising from modifications for credit reasons are recorded as part of 'Credit Impairment' (see Credit Impairment policy). Modification gains and losses arising from non-credit reasons are recognised either as part of 'Credit Impairment' or within income depending on whether there has been a change in the credit risk on the financial asset subsequent to the modification. Modification gains and losses arising on financial liabilities are recognised within income. The movements in the applicable expected credit loss loan positions are disclosed in further detail in Risk Review.

Page 45

The Group's classification of its financial assets and liabilities is summarised in the following tables.

Assets	Notes	Assets at fair value						Assets held at amortised cost $million	Total $million
		Trading $million	Derivatives held for hedging $million	Non-trading mandatorily at fair value through profit or loss $million	Designated at fair value through profit or loss $million	Fair value through other comprehensive income $million	Total financial assets at fair value $million
Cash and balances at central banks¹		-	-	-	-	-	-	63,447	63,447
Financial assets held at fair value through profit or loss
Loans and advances to banks2		2,213	-	-	-	-	2,213	-	2,213
Loans and advances to customers2		6,912	-	172	-	-	7,084	-	7,084
Reverse repurchase agreements and other similar secured lending	16	336	-	85,859	-	-	86,195	-	86,195
Debt securities, alternative tier one and other eligible bills		76,329	-	140	70	-	76,539	-	76,539
Equity shares		5,285	-	201	-	-	5,486	-	5,486
Other assets		-	-	-	-	-	-	-	-
		91,075	-	86,372	70	-	177,517	-	177,517
Derivative financial instruments	14	78,906	2,566	-	-	-	81,472	-	81,472
Loans and advances to banks2,3	15	-	-	-	-	-	-	43,593	43,593
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	2,946	2,946
Loans and advances to customers2	15	-	-	-	-	-	-	281,032	281,032
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	9,660	9,660
Investment securities
Debt securities, alternative tier one and other eligible bills		-	-	-	-	88,425	88,425	55,137	143,562
Equity shares		-	-	-	-	994	994	-	994
		-	-	-	-	89,419	89,419	55,137	144,556
Other assets	20					-	-	34,585	34,585
Assets held for sale	21	-	-	-	5	-	5	884	889
Total at 31 December 2024		169,981	2,566	86,372	75	89,419	348,413	478,678	827,091
Cash and balances at central banks¹							-	69,905	69,905
Financial assets held at fair value through profit or loss
Loans and advances to banks2		2,265	-	-	-	-	2,265	-	2,265
Loans and advances to customers2		6,930	-	282	-	-	7,212	-	7,212
Reverse repurchase agreements and other similar secured lending	16	9,997	-	71,850	-	-	81,847	-	81,847
Debt securities, alternative tier one and other eligible bills		52,776	-	98	78	-	52,952	-	52,952
Equity shares		2,721	-	219	-	-	2,940	-	2,940
Other assets		-	-	6	-	-	6	-	6
		74,689	-	72,455	78	-	147,222	-	147,222
Derivative financial instruments	14	48,333	2,101	-	-	-	50,434	-	50,434
Loans and advances to banks2,3	15	-	-	-	-	-	-	44,977	44,977
of which - reverse repurchase agreements and other similar secured lending	16	-	-	-	-	-	-	1,738	1,738
Loans and advances to customers2	15	-	-	-	-	-	-	286,975	286,975
of which - reverse repurchase agreements and other similar secured lending		-	-	-	-	-	-	13,996	13,996
Investment securities
Debt securities, alternative tier one and other eligible bills		-	-	-	-	103,328	103,328	56,935	160,263
Equity shares		-	-	-	-	992	992	-	992
		-	-	-	-	104,320	104,320	56,935	161,255
Other assets	20					-	-	38,140	38,140
Assets held for sale	21	-	-	-	-	-	-	701	701
Total at 31 December 2023		123,022	2,101	72,455	78	104,320	301,976	497,633	799,609

1 Comprises cash held at central banks in restricted accounts of $ 7,799 million (2023: $ 6,153 million), or on demand, or placements which are contractually due to mature over-night only. Other placements with central banks are reported as part of Loans and advances to customers

2 Further analysed in Risk review and Capital review

3 Loans and advances to banks include amounts due on demand from banks other than central banks

Page 46

Liabilities	Notes	Liabilities at fair value				Amortised cost $million	Total $million
		Trading $million	Derivatives held for hedging $million	Designated at fair value through profit or loss $million	Total financial liabilities at fair value $million
Financial liabilities held at fair value through profit or loss
Deposits by banks		-	-	1,893	1,893	-	1,893
Customer accounts		-	-	21,772	21,772	-	21,772
Repurchase agreements and other similar secured borrowing	16	925	-	32,614	33,539	-	33,539
Debt securities in issue	22	1	-	13,730	13,731	-	13,731
Short positions		14,527	-	-	14,527	-	14,527
Other liabilities		-	-	-	-	-	-
		15,453	-	70,009	85,462	-	85,462
Derivative financial instruments	14	80,037	2,027	-	82,064	-	82,064
Deposits by banks		-	-	-	-	25,400	25,400
Customer accounts		-	-	-	-	464,489	464,489
Repurchase agreements and other similar secured borrowing	16	-	-	-	-	12,132	12,132
Debt securities in issue	22	-	-	-	-	64,609	64,609
Other liabilities	23	-	-	-	-	44,047	44,047
Subordinated liabilities and other borrowed funds	27	-	-	-	-	10,382	10,382
Liabilities included in disposal groups held for sale	21	-	-	-	-	360	360
Total at 31 December 2024		95,490	2,027	70,009	167,526	621,419	788,945
Financial liabilities held at fair value through profit or loss
Deposits by banks		-	-	1,894	1,894	-	1,894
Customer accounts		39	-	17,209	17,248	-	17,248
Repurchase agreements and other similar secured borrowing	16	1,660	-	39,623	41,283	-	41,283
Debt securities in issue	22	-	-	10,817	10,817	-	10,817
Short positions		11,846	-	-	11,846	-	11,846
Other liabilities		-	-	8	8	-	8
		13,545	-	69,551	83,096	-	83,096
Derivative financial instruments	14	52,747	3,314	-	56,061	-	56,061
Deposits by banks		-	-	-	-	28,030	28,030
Customer accounts		-	-	-	-	469,418	469,418
Repurchase agreements and other similar secured borrowing	16	-	-	-	-	12,258	12,258
Debt securities in issue	22	-	-	-	-	62,546	62,546
Other liabilities	23	-	-	-	-	38,663	38,663
Subordinated liabilities and other borrowed funds	27	-	-	-	-	12,036	12,036
Liabilities included in disposal groups held for sale	21	-	-	-	-	726	726
Total at 31 December 2023		66,292	3,314	69,551	139,157	623,677	762,834

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

In practice, for credit mitigation, the Group is able to offset assets and liabilities which do not meet the IAS 32 netting criteria set out below. Such arrangements include master netting arrangements for derivatives and global master repurchase agreements for repurchase and reverse repurchase transactions. These agreements generally allow that all outstanding transactions with a particular counterparty can be offset but only in the event of default or other predetermined events.

In addition, the Group also receives and pledges readily realisable collateral for derivative transactions to cover net exposure in the event of a default. Under repurchase and reverse repurchase agreements the Group pledges (legally sells) and obtains (legally purchases) respectively, highly liquid assets which can be sold in the event of a default.

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The following tables set out the impact of netting on the balance sheet. This comprises derivative transactions settled through an enforceable netting agreement where we have the intent and ability to settle net and which are offset on the balance sheet.

	Gross amounts of recognised financial instruments $million	Impact of offset in the balance sheet $million	Net amounts of financial instruments presented in the balance sheet $million	Related amount not offset in the balance sheet		Net amount $million
				Financial instruments $million	Financial collateral $million
At 31 December 2024
Derivative financial instruments	97,902	(16,430)	81,472	(60,280)	(15,005)	6,187
Reverse repurchase agreements and other similar secured lending	137,115	(38,314)	98,801	-	(98,801)	-
Total Assets	235,017	(54,744)	180,273	(60,280)	(113,806)	6,187
Derivative financial instruments	98,494	(16,430)	82,064	(60,280)	(11,046)	10,738
Repurchase agreements and other similar secured borrowing	83,985	(38,314)	45,671	-	(45,671)	-
Total Liabilities	182,479	(54,744)	127,735	(60,280)	(56,717)	10,738
At 31 December 2023
Derivative financial instruments	99,929	(49,495)	50,434	(39,293)	(8,440)	2,701
Reverse repurchase agreements and other similar secured lending	109,413	(11,832)	97,581	-	(97,581)	-
Total Assets	209,342	(61,327)	148,015	(39,293)	(106,021)	2,701
Derivative financial instruments	105,556	(49,495)	56,061	(39,293)	(10,337)	6,431
Repurchase agreements and other similar secured borrowing	65,373	(11,832)	53,541	-	(53,541)	-
Total Liabilities	170,929	(61,327)	109,602	(39,293)	(63,878)	6,431

Related amounts not offset in the balance sheet comprises:

•      Financial instruments not offset in the balance sheet but covered by an enforceable netting arrangement. This comprises master netting arrangements held against derivative financial instruments and excludes the effect of over-collateralisation

•      Financial instruments where a legal opinion evidencing enforceability of the right of offset may not have been sought, or may have been unable to obtain such opinion

•      Financial collateral comprises cash collateral pledged and received for derivative financial instruments and collateral bought and sold for reverse repurchase and repurchase agreements respectively and excludes the effect of over-collateralisation

Financial liabilities designated at fair value through profit or loss

	2024 $million	2023 $million
Carrying Balance aggregate fair value	70,009	69,551
Amount Contractually obliged to repay at maturity	70,166	71,240
Difference between aggregate fair value and contractually obliged to repay at maturity	(157)	(1,689)
Cumulative change in Fair Value accredited to Credit Risk Difference	(276)	156

The net fair value loss on financial liabilities designated at fair value through profit or loss was $3,252 million for the year (31 December 2023: net loss of $2,649 million).

Further details of the Group's own credit adjustment (OCA) valuation technique is described later in this Note.

Page 48

Valuation of financial instruments

The Valuation Methodology function is responsible for independent price verification, oversight of fair value and appropriate value adjustments and escalation of valuation issues. Independent price verification is the process of determining that the valuations incorporated into the financial statements are validated independent of the business area responsible for the product. The Valuation Methodology function has oversight of the fair value adjustments to ensure the financial instruments are priced to exit. These are key controls in ensuring the material accuracy of the valuations incorporated in the financial statements. The market data used for price verification (PV) may include data sourced from recent trade data involving external counterparties or third parties such as Bloomberg, Reuters, brokers and consensus pricing providers. The Valuation Methodology function performs an ongoing review of the market data sources that are used as part of the PV and fair value processes which are formally documented on a semi-annual basis detailing the suitability of the market data used for price testing. Price verification uses independently sourced data that is deemed most representative of the market the instruments trade in. To determine the quality of the market data inputs, factors such as independence, relevance, reliability, availability of multiple data sources and methodology employed by the pricing provider are taken into consideration.

The Valuation and Benchmarks Committee (VBC) is the valuation governance forum consisting of representatives from Group Market Risk, Product Control, Valuation Methodology and the business, which meets monthly to discuss and approve the independent valuations of the inventory. For Principal Finance, the Investment Committee meeting is held on a quarterly basis to review investments and valuations.

Significant accounting estimates and judgements

The Group evaluates the significance of financial instruments and material accuracy of the valuations incorporated in the financial statements as they involve a high degree of judgement and estimation uncertainty in determining the carrying values of financial assets and liabilities at the balance sheet date.

•      Fair value of financial instruments is determined using valuation techniques and estimates (see below) which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs. Changes in the observability of significant valuation inputs can materially affect the fair values of financial instruments

•      When establishing the exit price of a financial instrument using a valuation technique, the Group estimates valuation adjustments in determining the fair value

•      In determining the valuation of financial instruments, the Group makes judgements on the amounts reserved to cater for model and valuation risks, which cover both Level 2 and Level 3 assets, and the significant valuation judgements in respect of Level 3 instruments

•      Where the estimated measurement of fair value is more judgemental in respect of Level 3 assets, these are valued based on models that use a significant degree of non-market-based unobservable inputs

Valuation techniques

Refer to the fair value hierarchy explanation - Level 1, 2 and 3

•      Financial instruments held at fair value

-      Debt securities - asset-backed securities: Asset-backed securities are valued based on external prices obtained from consensus pricing providers, broker quotes, recent trades, arrangers' quotes, etc. Where an observable price is available for a given security, it is classified as Level 2. In instances where third-party prices are not available or reliable, the security is classified as Level 3. The fair value of Level 3 securities is estimated using market standard cash flow models with input parameter assumptions which include prepayment speeds, default rates, discount margins derived from comparable securities with similar vintage, collateral type, and credit ratings.

-      Debt securities in issue: These debt securities relate to structured notes issued by the Group. Where independent market data is available through pricing vendors and broker sources these positions are classified as Level 2. Where such liquid external prices are not available, valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads, and are classified as Level 3. These input parameters are determined with reference to the same issuer (if available) or proxies from comparable issuers or assets.

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Derivatives: Derivative products are classified as Level 2 if the valuation of the product is based upon input parameters which are observable from independent and reliable market data sources. Derivative products are classified as Level 3 if there are significant valuation input parameters which are unobservable in the market, such as products where the performance is linked to more than one underlying variable. Examples are foreign exchange basket options, equity options based on the performance of two or more underlying indices and interest rate products with quanto payouts. In most cases these unobservable correlation parameters cannot be implied from the market, and methods such as historical analysis and comparison with historical levels or other benchmark data must be employed.

-      Equity shares - unlisted equity investments: The majority of unlisted equity investments are valued based on market multiples, including Price to Book (P/B), Price-to-Earnings (P/E) or enterprise value to earnings before income tax, depreciation and amortisation (EV/EBITDA) ratios of comparable listed companies. The primary inputs for the valuation of these investments are the actual financials or forecasted earnings of the investee companies and market multiples obtained from the comparable listed companies. To ensure comparability between these unquoted investments and the comparable listed companies, appropriate adjustments are also applied (for example, liquidity and size) in the valuation. In circumstances where an investment does not have direct comparables or where the multiples for the comparable companies cannot be sourced from reliable external sources, alternative valuation techniques (for example, discounted cash flow model or net asset value ("NAV") or option pricing model), which use predominantly unobservable inputs or Level 3 inputs, may be applied. Even though market multiples for the comparable listed companies can be sourced from third-party sources (for example, Bloomberg), and those inputs can be deemed Level 2 inputs, all unlisted investments (excluding those where observable inputs are available, for example, over-the-counter (OTC) prices) are classified as Level 3 on the basis that the valuation methods involve judgements ranging from determining comparable companies to discount rates where the discounted cash flow method is applied.

-      Loans and advances: These primarily include loans in the FM Bond and Loan Syndication business which were not fully syndicated as of the balance sheet date and other financing transactions within Financial Markets, and loans and advances including reverse repurchase agreements that do not have SPPI cashflows or are managed on a fair value basis. Where available, loan valuation is based on observable clean sales transactions prices or market observable spreads. If observable credit spreads are not available, proxy spreads based on comparables with similar credit grade, sector and region, are used. Where observable transaction prices, credit spreads and market standard proxy methods are available, these loans are classified as Level 2. Where there are no recent transactions or comparables, these loans are classified as Level 3.

-      Other debt securities: These debt securities include convertible bonds, corporate bonds, credit and structured notes. Where quoted prices are available through pricing vendors, brokers or observable trading activities from liquid markets, these are classified as Level 2 and valued using such quotes. Where there are significant valuation inputs which are unobservable in the market, due to illiquid trading or the complexity of the product, these are classified as Level 3. The valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads. These input parameters are determined with reference to the same issuer (if available) or proxied from comparable issuers or assets.

•      Financial instruments held at amortised cost

The following sets out the Group's basis for establishing fair values of amortised cost financial instruments and their classification between Levels 1, 2 and 3. As certain categories of financial instruments are not actively traded, there is a significant level of management judgement involved in calculating the fair values:

-      Cash and balances at central banks: The fair value of cash and balances at central banks is their carrying amounts

-      Debt securities in issue, subordinated liabilities and other borrowed funds: The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not available, a discounted cash flow model is used based on a current market related yield curve appropriate for the remaining term to maturity

-      Deposits and borrowings: The estimated fair value of deposits with no stated maturity is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings without quoted market prices is based on discounted cash flows using the prevailing market rates for debts with a similar Credit Risk and remaining maturity

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-      Investment securities: For investment securities that do not have directly observable market values, the Group utilises a number of valuation techniques to determine fair value. Where available, securities are valued using input proxies from the same or closely related underlying (for example, bond spreads from the same or closely related issuer) or input proxies from a different underlying (for example, a similar bond but using spreads for a particular sector and rating). Certain instruments cannot be proxies as set out above, and in such cases the positions are valued using non-market observable inputs. This includes those instruments held at amortised cost and predominantly relates to asset-backed securities. The fair value for such instruments is usually proxies from internal assessments of the underlying cash flows

-      Loans and advances to banks and customers: For loans and advances to banks, the fair value of floating rate placements and overnight deposits is their carrying amounts. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using the prevailing money market rates for debts with a similar Credit Risk and remaining maturity. The Group's loans and advances to customers' portfolio is well diversified by geography and industry. Approximately a quarter of the portfolio re-prices within one month, and approximately half re-prices within 12 months. Loans and advances are presented net of provisions for impairment. The fair value of loans and advances to customers with a residual maturity of less than one year generally approximates the carrying value. The estimated fair value of loans and advances with a residual maturity of more than one year represents the discounted amount of future cash flows expected to be received, including assumptions relating to prepayment rates and Credit Risk. Expected cash flows are discounted at current market rates to determine fair value. The Group has a wide range of individual instruments within its loans and advances portfolio and as a result providing quantification of the key assumptions used to value such instruments is impractical

-      Other assets: Other assets comprise primarily of cash collateral and trades pending settlement. The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are either short-term in nature or re-price to current market rates frequently

Fair value adjustments

When establishing the exit price of a financial instrument using a valuation technique, the Group considers adjustments to the modelled price which market participants would make when pricing that instrument. The main valuation adjustments (described further below) in determining fair value for financial assets and financial liabilities are as follows:

	01.01.24 $million	Movement during the year $million	31.12.24 $million	01.01.23 $million	Movement during the year $million	31.12.23 $million
Bid-offer valuation adjustment	115	2	117	118	(3)	115
Credit valuation adjustment	119	15	134	171	(52)	119
Debit valuation adjustment	(129)	24	(105)	(112)	(17)	(129)
Model valuation adjustment	4	1	5	3	1	4
Funding valuation adjustment	33	8	41	46	(13)	33
Other fair value adjustments	25	1	26	23	2	25
Total	167	51	218	249	(82)	167
Income deferrals
Day 1 and other deferrals	109	29	138	186	(77)	109
Total	109	29	138	186	(77)	109

Note: Bracket represents an asset and credit to the income statement

 

Page 51

•      Bid-offer valuation adjustment: Generally, market parameters are marked on a mid-market basis in the revaluation systems, and a bid-offer valuation adjustment is required to quantify the expected cost of neutralising the business' positions through dealing away in the market, thereby bringing long positions to bid and short positions to offer. The methodology to calculate the bid-offer adjustment for a derivative portfolio involves netting between long and short positions and the grouping of risk by strike and tenor based on the hedging strategy where long positions are marked to bid and short positions marked to offer in the systems.

•      Credit valuation adjustment (CVA): The Group accounts for CVA against the fair value of derivative products. CVA is an adjustment to the fair value of the transactions to reflect the possibility that our counterparties may default and we may not receive the full market value of the outstanding transactions. It represents an estimate of the adjustment a market participant would include when deriving a purchase price to acquire our exposures. CVA is calculated for each subsidiary, and within each entity for each counterparty to which the entity has exposure and takes account of any collateral we may hold. The Group calculates the CVA by using estimates of future positive exposure, market-implied probability of default (PD) and recovery rates. Where market-implied data is not readily available, we use market-based proxies to estimate the PD. Wrong-way risk occurs when the exposure to a counterparty is adversely correlated with the credit quality of that counterparty, and the Group has implemented a model to capture this impact for key wrong-way exposures. The Group also captures the uncertainties associated with wrong-way risk in the Group's Prudential Valuation Adjustments framework.

•      Debit valuation adjustment (DVA): The Group calculates DVA adjustments on its derivative liabilities to reflect changes in its own credit standing. The Group's DVA adjustments will increase if its credit standing worsens and conversely, decrease if its credit standing improves. For derivative liabilities, a DVA adjustment is determined by applying the Group's probability of default to the Group's negative expected exposure against the counterparty. The Group's probability of default and loss expected in the event of default is derived based on bond and CDS spreads associated with the Group's issuances and market standard recovery levels. The expected exposure is modelled based on the simulation of the underlying risk factors over the expected life of the deal. This simulation methodology incorporates the collateral posted by the Group and the effects of master netting agreements.

•      Model valuation adjustment: Valuation models may have pricing deficiencies or limitations that require a valuation adjustment. These pricing deficiencies or limitations arise due to the choice, implementation and calibration of the pricing model.

•      Funding valuation adjustment (FVA): The Group makes FVA adjustments against derivative products, including embedded derivatives. FVA reflects an estimate of the adjustment to its fair value that a market participant would make to incorporate funding costs or benefits that could arise in relation to the exposure. FVA is calculated by determining the net expected exposure at a counterparty level and then applying a funding rate to those exposures that reflect the market cost of funding. The FVA for uncollateralised (including partially collateralised) derivatives incorporates the estimated present value of the market funding cost or benefit associated with funding these transactions.

•      Other fair value adjustments: The Group calculates the fair value on the interest rate callable products by calibrating to a set of market prices with differing maturity, expiry and strike of the trades.

•      Day one and other deferrals: In certain circumstances the initial fair value is based on a valuation technique which differs to the transaction price at the time of initial recognition. However, these gains can only be recognised when the valuation technique used is based primarily on observable market data. In those cases where the initially recognised fair value is based on a valuation model that uses inputs which are not observable in the market, the difference between the transaction price and the valuation model is not recognised immediately in the income statement. The difference is amortised to the income statement until the inputs become observable, or the transaction matures or is terminated. Other deferrals primarily represent adjustments taken to reflect the specific terms and conditions of certain derivative contracts which affect the termination value at the measurement date.

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In addition, the Group calculates own credit adjustment (OCA) on its issued debt designated at fair value, including structured notes, in order to reflect changes in its own credit standing. Issued debt is discounted utilising the spread at which similar instruments would be issued or bought back at the measurement date as this reflects the value from the perspective of a market participant who holds the identical item as an asset. OCA measures the difference between the fair value of issued debt as of reporting date and theoretical fair values of issued debt adjusted up or down for changes in own credit spreads from inception date to the measurement date. Under IFRS 9 the change in the OCA component is reported under other comprehensive income. The Group's OCA reserve will increase if its credit standing worsens in comparison to the inception of the trade and, conversely, decrease if its credit standing improves. The Group's OCA reserve will reverse over time as its liabilities mature.

Fair value hierarchy - financial instruments held at fair value

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use unobservable inputs.. Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison with instruments that have characteristics similar to those of the instruments held by the Group.

Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the observability of the significant inputs used to determine the fair values. Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy. The Group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level of observability of the inputs to the valuation techniques as at the end of the reporting period.

•      Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities.

•      Level 2: Fair value measurements are those with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

•      Level 3: Fair value measurements are those where inputs which could have a significant effect on the instrument's valuation are not based on observable market data.

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The following tables show the classification of financial instruments held at fair value into the valuation hierarchy:

Assets	2024					2023
	Level 1 $million	Level 2 $million	Level 3 $million	Total $million		Level 1 $million	Level 2 $million	Level 3 $million	Total $million
Financial instruments held at fair value through profit or loss
Loans and advances to banks	-	2,213	-	2,213		-	2,265	-	2,265
Loans and advances to customers	-	5,147	1,937	7,084		-	5,252	1,960	7,212
Reverse repurchase agreements and other similar secured lending	19	82,937	3,239	86,195		-	79,484	2,363	81,847
Debt securities and other eligible bills	32,331	42,615	1,593	76,539		27,055	24,635	1,262	52,952
Of which:
Issued by Central banks & Governments	30,278	13,355	9	43,642		23,465	6,557	-	30,022
Issued by corporates other than financial institutions1	7	4,860	399	5,266		4	4,062	346	4,412
Issued by financial institutions1	2,046	24,400	1,185	27,631		3,586	14,016	916	18,518
Equity shares	5,287	8	191	5,486		2,386	370	184	2,940
Derivative financial instruments	386	80,958	128	81,472		954	49,400	80	50,434
Of which:
Foreign exchange	140	72,870	37	73,047		129	42,414	25	42,568
Interest rate	27	6,296	80	6,403		37	6,293	6	6,336
Credit	-	388	9	397		-	438	47	485
Equity and stock index options	-	349	2	351		-	73	2	75
Commodity	219	1,055	-	1,274		788	182	-	970
Investment securities
Debt securities and other eligible bills	50,249	38,176	-	88,425		55,060	48,196	72	103,328
Of which:
Issued by Central banks & Governments	41,395	16,916	-	58,311		47,225	18,983	51	66,259
Issued by corporates other than financial institutions1	-	490	-	490		820	3,236	-	4,056
Issued by financial institutions1	8,854	20,770	-	29,624		7,015	25,977	21	33,013
Equity shares	27	2	965	994		199	6	787	992
Other Assets	-	-	-	-		-	-	6	6
Total assets at 31 December2	88,299	252,056	8,053	348,408		85,654	209,608	6,714	301,976
Liabilities
Financial instruments held at fair value through profit or loss
Deposits by banks	-	1,522	371	1,893		-	1,560	334	1,894
Customer accounts	-	19,058	2,714	21,772		-	15,970	1,278	17,248
Repurchase agreements and other similar secured borrowing	-	33,539	-	33,539		-	41,283	-	41,283
Debt securities in issue	-	12,317	1,414	13,731		-	9,776	1,041	10,817
Short positions	8,789	5,558	180	14,527		7,152	4,591	103	11,846
Derivative financial instruments	419	81,387	258	82,064		749	55,116	196	56,061
Of which:
Foreign exchange	183	69,684	8	69,875		122	45,314	10	45,446
Interest rate	14	8,586	23	8,623		46	8,262	5	8,313
Credit	-	2,131	189	2,320		-	945	162	1,107
Equity and stock index options	-	157	37	194		-	147	19	166
Commodity	222	829	1	1,052		581	448	-	1,029
Other Liabilities	-	-	-	-		-	-	8	8
Total liabilities at 31 December	9,208	153,381	4,937	167,526		7,901	128,296	2,960	139,157

1 Includes covered bonds of $3,727 million (2023: $7,509 million), securities issued by Multilateral Development Banks/International Organisations of $10,679 million (2023: $24,192 million), and State-owned agencies and development banks of $16,759 million(2023: $7,564 million)

2 The table above does not include held for sale assets of $5 million (2023: $nil) .These are reported in Note 21 together with their fair value hierarchy

Page 54

The fair value of financial assets and financial liabilities classified as Level 2 in the fair value hierarchy that are subject to complex modelling techniques is $739 million (2023: $940 million) and $320 million (2023: $288 million) respectively.

There were no significant changes to valuation or levelling approaches in 2024.

There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during the year.

Fair value hierarchy - financial instruments measured at amortised cost

The following table shows the carrying amounts and incorporates the Group's estimate of fair values of those financial assets and liabilities not presented on the Group's balance sheet at fair value. These fair values may be different from the actual amount that will be received or paid on the settlement or maturity of the financial instrument. For certain instruments, the fair value may be determined using assumptions for which no observable prices are available.

	2024						2023
	Carrying value $million	Fair value					Carrying value $million	Fair value
		Level 1 $million	Level 2 $million	Level 3 $million	Total $million			Level 1 $million	Level 2 $million	Level 3 $million	Total $million
Assets
Cash and balances at central banks¹	63,447	-	63,447	-	63,447		69,905	-	69,905	-	69,905
Loans and advances to banks	43,593	-	43,430	165	43,595		44,977	-	44,921	-	44,921
of which - reverse repurchase agreements and other similar secured lending	2,946	-	2,948	-	2,948		1,738	-	1,738	-	1,738
Loans and advances to customers	281,032	-	40,582	238,986	279,568		286,975	-	53,472	226,211	279,683
of which - reverse repurchase agreements and other similar secured lending	9,660	-	9,618	42	9,660		13,996	-	13,827	169	13,996
Investment securities²	55,137	-	53,050	24	53,074		56,935	-	54,419	33	54,452
Other assets¹	34,585	-	34,585	-	34,585		38,140	-	38,140	-	38,140
Assets held for sale	884	58	353	473	884		701	101	541	59	701
Total assets at 31 December	478,678	58	235,447	239,648	475,153		497,633	101	261,398	226,303	487,802
Liabilities
Deposits by banks	25,400	-	25,238	-	25,238		28,030	-	28,086	-	28,086
Customer accounts	464,489	-	461,549	-	461,549		469,418	-	460,224	-	460,224
Repurchase agreements and other similar secured borrowing	12,132	-	12,133	-	12,133		12,258	-	12,258	-	12,258
Debt securities in issue	64,609	32,209	32,181	-	64,390		62,546	31,255	30,859	-	62,114
Subordinated liabilities and other borrowed funds	10,382	9,599	429	-	10,028		12,036	11,119	336	-	11,455
Other liabilities¹	44,047	-	44,047	-	44,047		38,663	-	38,663	-	38,663
Liabilities held for sale	360	89	271	-	360		726	54	672	-	726
Total liabilities at 31 December	621,419	41,897	575,848	-	617,745		623,677	42,428	571,098	-	613,526

1 The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current market rates frequently

2 Includes Government bonds and Treasury bills of $23,150 million at 31 December 2024 (31 December 2023: $19,422 million)

Loans and advances to customers by client segment1

	2024								2023
	Carrying value				Fair value				Carrying value				Fair value
	Stage 3 $million	Stage 1 and stage 2 $million	Total $million		Stage 3 $million	Stage 1 and stage 2 $million	Total $million		Stage 3 $million	Stage 1 and stage 2 $million	Total $million		Stage 3 $million	Stage 1 and stage 2 $million	Total $million
Corporate & Investment Banking	1,298	137,006	138,304		1,174	137,234	138,408		1,975	128,430	130,405		1,910	125,841	127,751
Wealth & Retail Banking	858	118,390	119,248		858	116,823	117,681		724	125,335	126,059		721	120,701	121,422
Ventures	1	1,388	1,389		-	1,388	1,388		-	1,033	1,033		-	1,032	1,032
Central & other items	98	21,993	22,091		98	21,993	22,091		209	29,269	29,478		209	29,269	29,478
At 31 December	2,255	278,777	281,032		2,130	277,438	279,568		2,908	284,067	286,975		2,840	276,843	279,683

1 Loans and advances includes reverse repurchase agreements and other similar secured lending: carrying value $9,660 million and fair value $9,660 million (31 December 2023: $13,996 million and $13,996 million respectively)

Page 55

Fair value of financial instruments

Level 3 Summary and significant unobservable inputs

The following table presents the Group's primary Level 3 financial instruments which are held at fair value. The table also presents the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and the weighted average of those inputs:

Instrument	Value as at 31 December 2024			Principal valuation technique	Significant unobservable inputs	Range1	Weighted average2
	Assets $million	Liabilities $million
Loans and advances to customers	1,937	-		Discounted cash flows	Price/yield	1.0% - 100%	20.8%
					Recovery rate	93.2% - 95.6%	95.1%
Reverse repurchase agreements and other similar secured lending	3,239	-		Discounted cash flows	Repo curve	2.0% - 7.6%	6.2%
					Price/yield	2.3% - 10.5%	6.4%
Debt securities, alternative tier one and other eligible securities	1,584	-		Discounted cash flows	Price/yield	0.7% - 15.3%	6.9%
					Recovery rate	0.01% - 16.3%	9.2%
Government bonds and treasury bills	9	-		Discounted cash flows	Price/yield	23.5% - 23.5%	23.5%
Equity shares (includes private equity investments)	1,156	-		Comparable pricing/yield	EV/EBITDA multiples	5.3x - 18.1x	14.8x
					EV/Revenue multiples	8.5x - 12.9x	9.0x
					P/E multiples	17.9x - 48.3x	46.9x
					P/B multiples	0.3x - 3.2x	1.3x
					P/S multiples	0.2x - 1.3x	0.2x
					Liquidity discount	10.0% - 30.0%	16.8%
				Discounted cash flows	Discount rates	8.3% - 20.4%	10.1%
				Option pricing model	Equity value based on EV/Revenue multiples	5.7x - 23.6x	16.2x
					Equity value based on EV/EBITDA multiples	10.1x - 10.1x	10.1x
					Equity value based on volatility	30.2% - 50.0%	30.5%
Derivative financial instruments of which:
Foreign exchange	37	8		Option pricing model	Foreign exchange option implied volatility	10.2% - 46.2%	42.0%
					Interest rate curves	3.5% - 9.0%	4.2%
					Foreign exchange curves	(0.03)% - 34.3%	6.1%
Commodity	-	1		Discounted cash flows	Commodity prices	$383.0 - $391.0	$387.0
					CM-CM correlation	73.7% - 97.9%	86.0%
Interest rate	80	23		Discounted cash flows	Interest rate curves	3.5% - 43.9%	5.1%
				Option pricing model	Bond option implied volatility	2.3% - 4.7%	3.5%
Credit	9	189		Discounted cash flows	Credit spreads	0.1% - 1.9%	0.9%
					Price/yield	4.8% - 6.6%	5.5%
Equity and stock index	2	37		Internal pricing model	Equity-Equity correlation	44.9% - 100%	80.0%
					Equity-FX correlation	(36.4)% - 48.9%	5.0%
Deposits by banks	-	371		Discounted cash flows	Credit spreads	0.2% - 3.5%	1.5%
Customer accounts	-	2,714		Internal pricing model	Equity-Equity correlation	44.9% - 100%	80.0%
					Equity-FX correlation	(36.4)% - 48.9%	5.0%
				Discounted cash flows	Interest rate curves	1.4% - 4.4%	4.0%
					Price/yield	0.7% - 13.0%	8.5%
Debt securities in issue	-	1,414		Discounted cash flows	Credit spreads	0.05% - 2.0%	0.8%
					Price/yield	6.2% - 14.8%	12.7%
					Interest rate curves	3.5% - 4.4%	4.1%
				Internal pricing model	Equity-Equity correlation	44.9% - 100%	80.0%
					Equity-FX correlation	(36.4)% - 48.9%	5.0%
				Option pricing model	Bond option implied volatility	4.0% - 15%	12.5%
Short positions	-	180		Discounted cash flows	Price/yield	5.9% - 12.7%	6.3%
Total	8,053	4,937

1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at 31 December 2024. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments

2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator

Page 56

13. Financial instruments continued

Instrument	Value as at 31 December 2023			Principal valuation technique	Significant unobservable inputs	Range1	Weighted average2
	Assets $million	Liabilities $million
Loans and advances to customers	1,960	-		Discounted cash flows	Price/yield	1.7% - 100%	12.0%
					Credit spreads	0.1% - 1.0%	0.6%
Reverse repurchase agreements and other similar secured lending	2,363	-		Discounted cash flows	Repo curve	5.1% - 7.6%	6.3%
					Price/yield	(2.7)%- 10.3%	6.0%
Debt securities, alternative tier one and other eligible securities	1,283	-		Discounted cash flows	Price/yield	(14.0)% - 25.8%	10.1%
					Recovery rates	0.1% - 1.0%	0.2%
				Internal pricing model	Equity-Equity correlation	44.1%-100%	80.7%
					Equity-FX correlation	(35.9)%-45.5%	14.2%
Government bonds and treasury bills	51	-		Discounted cash flows	Price/yield	17.7% - 21.8%	20.6%
Equity shares (includes private equity investments)	971	-		Comparable pricing/yield	EV/EBITDA multiples	13.8x - 15.6x	14.9x
					EV/Revenue multiples	9.3x - 30.9x	15.8x
					P/E multiples	10.6x - 51.8x	45.7x
					P/B multiples	0.3x - 2.7x	1.6x
					P/S multiples	0.2x - 1.6x	0.3x
					Liquidity discount	7.5% - 20.0%	15.1%
				Discounted cash flows	Discount rates	9.2% - 35.6%	17.0%
				Option pricing model	Equity value based on EV/Revenue multiples	8.4x - 42.5x	27.5x
					Equity value based on EV/EBITDA multiples	3.1x - 3.1x	3.1x
					Equity value based on volatility	21.0% - 65.0%	30.1%
Other Assets	6	-		NAV	N/A	N/A	N/A
Derivative financial instruments of which:
Foreign exchange	25	10		Option pricing model	Foreign exchange option implied volatility	0.5% - 51%	31.8%
				Discounted cash flows	Interest rate curves	3.6% - 5.8%	3.8%
					Foreign exchange curves	0.6% - 64.2%	12.8%
Interest rate	6	5		Discounted cash flows	Interest rate curves	3.6% - 8.6%	5.0%
Credit	47	162		Discounted cash flows	Credit spreads	1.0% - 1.0%	1.0%
					Price/yield	1.7% - 16.3%	8.6%
Equity and stock index	2 -	19 -		Internal pricing model	Equity-Equity correlation	44.1% - 100%	80.7%
					Equity-FX correlation	(35.9)% - 45.5%	14.2%
Deposits by banks	-	334		Discounted cash flows	Credit spreads	0.1% - 3.4%	1.9%
Customer accounts	-	1,278		Discounted cash flows	Credit spreads	1.0% - 2.0%	1.2%
					Interest rate curves	2.9% - 8.6%	6.1%
					Price/yield	4.8% - 15.2%	9.9%
				Internal pricing model	Equity-Equity correlation	44.1% - 100%	80.7%
					Equity-FX correlation	(35.9)% - 45.5%	14.2%
Debt securities in issue	-	1,041		Discounted cash flows	Credit spreads	0.3% - 1.6%	1.1%
					Price/yield	6.6% - 20.9%	17.9%
					Interest rate curves	2.9% - 5.3%	4.4%
				Internal pricing model	Equity-Equity correlation	44.1% - 100%	80.7%
					Equity-FX correlation	(35.9)% - 45.5%	14.2%
					Bond option implied volatility	2.9% - 5.3%	4.4%
Short position	-	103		Discounted cash flows	Price/yield	7.1% - 7.1%	7.1%
Other Liabilities	-	8		Comparable pricing/yield	EV/EBITDA multiples	5.8x - 11.2x	8.5x
Total	6,714	2,960

1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at 31 December 2023. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments

2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator

Page 57

The following section describes the significant unobservable inputs identified in the valuation technique table:

•      Comparable price/yield is a valuation methodology in which the price of a comparable instrument is used to estimate the fair value where there are no direct observable prices. Yield is the interest rate that is used to discount the future cash flows in a discounted cash flow model. Valuation using comparable instruments can be done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable instrument, then adjusting that yield (or spread) to derive a value for the instrument. The adjustment should account for relevant differences in the financial instruments such as maturity and/or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and the instrument being valued in order to establish the value of the instrument (for example, deriving a fair value for a junior unsecured bond from the price of a senior secured bond). An increase in price, in isolation, would result in a favourable movement in the fair value of the asset. An increase in yield, in isolation, would result in an unfavourable movement in the fair value of the asset

•      Correlation is the measure of how movement in one variable influences the movement in another variable. An equity correlation is the correlation between two equity instruments, an interest rate correlation refers to the correlation between two swap rates, while commodity correlation is correlation between two commodity underlying prices

•      Commodity price curves is the term structure for forward rates over a specified period

•      Credit spread represents the additional yield that a market participant would demand for taking exposure to the Credit Risk of an instrument

•      Discount rate refers to the rate of return used to convert expected cash flows into present value

•      Equity-FX correlation is the correlation between equity instrument and foreign exchange instrument

•      EV/EBITDA multiple is the ratio of Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). EV is the aggregate market capitalisation and debt minus the cash and cash equivalents. An increase in EV/EBITDA multiple will result in a favourable movement in the fair value of the unlisted firm

•      EV/Revenue multiple is the ratio of Enterprise Value (EV) to Revenue. An increase in EV/Revenue multiple will result in a favourable movement in the fair value of the unlisted firm

•      Foreign exchange curves is the term structure for forward rates and swap rates between currency pairs over a specified period

•      Net asset value (NAV) is the value of an entity's assets after deducting any liabilities

•      Interest rate curves is the term structure of interest rates and measures of future interest rates at a particular point in time

•      Liquidity discounts in the valuation of unlisted investments are primarily applied to the valuation of unlisted firms' investments to reflect the fact that these stocks are not actively traded. An increase in liquidity discount will result in an unfavourable movement in the fair value of the unlisted firm

•      Price-Earnings (P/E) multiple is the ratio of the market value of the equity to the net income after tax. An increase in P/E multiple will result in a favourable movement in the fair value of the unlisted firm

•      Price-Book (P/B) multiple is the ratio of the market value of equity to the book value of equity. An increase in P/B multiple will result in a favourable movement in the fair value of the unlisted firm

•      Price-Sales (P/S) multiple is the ratio of the market value of equity to sales. An increase in P/S multiple will result in a favourable movement in the fair value of the unlisted firm

•      Recovery rates is the expectation of the rate of return resulting from the liquidation of a particular loan. As the probability of default increases for a given instrument, the valuation of that instrument will increasingly reflect its expected recovery level assuming default. An increase in the recovery rate, in isolation, would result in a favourable movement in the fair value of the loan

•      Repo curve is the term structure of repo rates on repos and reverse repos at a particular point in time

•      Volatility represents an estimate of how much a particular instrument, parameter or index will change in value over time. Generally, the higher the volatility, the more expensive the option will be

Page 58

Level 3 movement tables - financial assets

The table below analyses movements in Level 3 financial assets carried at fair value.

Assets	Held at fair value through profit or loss							Derivative financial instruments $million	Investment securities		Total $million
	Loans and advances to banks $million	Loans and advances to customers $million	Reverse repurchase agreements and other similar secured lending $million	Debt securities, alternative tier one and other eligible bills $million	Equity shares $million	Other Assets $million			Debt securities, alternative tier one and other eligible bills $million	Equity shares $million
At 01 January 2024	-	1,960	2,363	1,262	184	6		80	72	787	6,714
Total (losses)/gains recognised in income statement	(1)	8	73	(114)	(15)	-		(57)	-	-	(106)
Net trading income	(1)	8	73	(56)	(15)	-		(57)	-	-	(48)
Other operating income	-	-	-	(58)	-	-		-	-	-	(58)
Total (losses)/gains recognised in other comprehensive income (OCI)	-	-	-	-	-	-		-	(11)	50	39
Fair value through OCI reserve	-	-	-	-	-	-		-	-	74	74
Exchange difference	-	-	-	-	-	-		-	(11)	(24)	(35)
Purchases	-	1,853	6,161	1,337	24	-		227	-	145	9,747
Sales	-	(2,062)	(4,716)	(907)	(2)	-		(160)	-	(19)	(7,866)
Settlements	(7)	(42)	(782)	-	-	-		-	-	-	(831)
Transfers out1	(13)	(263)	-	(1)	-	(6)		(1)	(61)	(2)	(347)
Transfers in2	21	483	140	16	-	-		39	-	4	703
At 31 December 2024	-	1,937	3,239	1,593	191	-		128	-	965	8,053
Recognised in the income statement3	-	7	1	7	(13)	-		(9)	-	-	(7)
At 01 January 2023	21	1,805	1,998	1,153	182	7		44	-	655	5,865
Total (losses)/gains recognised in income statement	-	(35)	(107)	(292)	4	(1)		12	-	-	(419)
Net trading income	-	(35)	(107)	(304)	5	-		12	-	-	(429)
Other operating income	-	-	-	12	(1)	(1)		-	-	-	10
Total (losses)/gains recognised in other comprehensive income (OCI)	-	-	-	-	-	-		-	(1)	101	100
Fair value through OCI reserve	-	-	-	-	-	-		-	-	108	108
Exchange difference	-	-	-	-	-	-		-	(1)	(7)	(8)
Purchases	22	1,784	5,902	1,082	8	-		189	21	61	9,069
Sales	(22)	(1,133)	(3,942)	(518)	(10)	-		(115)	(23)	(5)	(5,768)
Settlements	-	(442)	(1,488)	(305)	-	-		(25)	-	-	(2,260)
Transfers out1	(21)	(225)	-	(6)	-	-		(27)	(16)	(32)	(327)
Transfers in2	-	206	-	148	-	-		2	91	7	454
At 31 December 2023	-	1,960	2,363	1,262	184	6		80	72	787	6,714
Recognised in the income statement3	-	(3)	3	(1)	4	-		(12)	-	-	(9)

1 Transfers out includes loans and advances, debt securities, alternative tier one and other eligible bills, equity shares, other assets and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 1 and Level 2

2 Transfers in primarily relate to loans and advances, repurchase agreements, debt securities, alternative tier one and other eligible bills, equity shares and derivative financial instruments where the valuation parameters become unobservable during the year

3 Represents Total unrealised (losses)/gains recognised in the income statement, within net trading income, relating to change in fair value of assets

Page 59

Level 3 movement tables - financial liabilities

	Deposits by banks $million	Customer accounts $million	Debt securities in issue $million	Derivative financial instruments $million	Short positions $million	Other liabilities $million	Total $million
At 01 January 2024	334	1,278	1,041	196	103	8	2,960
Total losses/(gains) recognised in income statement - net trading income	49	(27)	48	(6)	3	(8)	59
Issues	388	3,068	4,244	507	177	-	8,384
Settlements	(400)	(1,627)	(2,795)	(438)	(103)	-	(5,363)
Transfers out1	-	(26)	(1,194)	(7)	-	-	(1,227)
Transfers in2	-	48	70	6	-	-	124
At 31 December 2024	371	2,714	1,414	258	180	-	4,937
Recognised in the income statement3	29	5	2	(13)	-	-	23
At 01 January 2023	288	972	451	121	40	6	1,878
Total losses/(gains) recognised in income statement - net trading income	7	(6)	39	(52)	3	3	(6)
Issues	628	1,789	1,489	447	100	-	4,453
Settlements	(585)	(1,491)	(1,218)	(312)	(40)	-	(3,646)
Transfers out1	(4)	(9)	(85)	(11)	-	(1)	(110)
Transfers in2	-	23	365	3	-	-	391
At 31 December 2023	334	1,278	1,041	196	103	8	2,960
Recognised in the income statement3	-	(21)	6	(47)	-	-	(62)

1 Transfers out during the year primarily relate to customer accounts, debt securities in issue and derivative financial instruments where the valuation parameters became observable during the year and were transferred to Level 2 financial liabilities

2 Transfers in during the year primarily relate to customer accounts, debt securities in issue and derivative financial instruments where the valuation parameters become unobservable during the year

3 Represents Total unrealised losses/(gains) recognised in the income statement, within net trading income, relating to change in fair value of liabilities

Page 60

Sensitivities in respect of the fair values of Level 3 assets and liabilities

Sensitivity analysis is performed on products with significant unobservable inputs. The Group applies a 10 per cent increase or decrease on the values of these unobservable inputs, to generate a range of reasonably possible alternative valuations. The percentage shift is determined by statistical analysis performed on a set of reference prices based on the composition of the Group's Level 3 inventory as the measurement date. Favourable and unfavourable changes (which show the balance adjusted for input change) are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable parameters. The Level 3 sensitivity analysis assumes a one-way market move and does not consider offsets for hedges.

	Held at fair value through profit or loss				Fair value through other comprehensive income
	Net exposure $million	Favourable changes $million	Unfavourable changes $million		Net exposure $million	Favourable changes $million	Unfavourable changes $million
Financial instruments held at fair value
Loans and advances	1,937	1,985	1,862		-	-	-
Reverse Repurchase agreements and other similar secured lending	3,239	3,339	3,138		-	-	-
Debt securities, alternative tier one and other eligible bills	1,593	1,643	1,542		-	-	-
Equity shares	191	210	172		965	1,032	888
Other Assets	-	-	-		-	-	-
Derivative financial instruments	(130)	(115)	(147)		-	-	-
Customers accounts	(2,714)	(2,540)	(2,883)		-	-	-
Deposits by banks	(371)	(371)	(371)		-	-	-
Short positions	(180)	(178)	(182)		-	-	-
Debt securities in issue	(1,414)	(1,352)	(1,476)		-	-	-
Other Liabilities	-	-	-		-	-	-
At 31 December 2024	2,151	2,621	1,655		965	1,032	888
Financial instruments held at fair value
Loans and advances	1,960	1,985	1,918		-	-	-
Reverse Repurchase agreements and other similar secured lending	2,363	2,390	2,336		-	-	-
Debt securities, alternative tier one and other eligible bills	1,262	1,309	1,193		72	78	66
Equity shares	184	202	166		787	866	708
Other Assets	6	7	5		-	-	-
Derivative financial instruments	(116)	(75)	(157)		-	-	-
Customers accounts	(1,278)	(1,191)	(1,365)		-	-	-
Deposits by banks	(334)	(334)	(334)		-	-	-
Short positions	(103)	(101)	(105)		-	-	-
Debt securities in issue	(1,041)	(966)	(1,115)		-	-	-
Other Liabilities	(8)	(7)	(9)		-	-	-
At 31 December 2023	2,895	3,219	2,533		859	944	774

The reasonably possible alternatives could have increased or decreased the fair values of financial instruments held at fair value through profit or loss and those classified as fair value through other comprehensive income by the amounts disclosed below.

Financial instruments	Fair value changes
	Possible increase			Possible decrease
	2024 $million	2023 $million		2024 $million	2023 $million
Held at fair value through profit or loss	470	324		(496)	(362)
Fair value through other comprehensive income	67	85		(77)	(85)

 

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14. Derivative financial instruments

Accounting policy

Fair values may be obtained from quoted market prices in active markets, recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. Where the initially recognised fair value of a derivative contract is based on a valuation model that uses inputs which are not observable in the market, it follows the same initial recognition accounting policy as for other financial assets and liabilities. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

Hedge accounting

Under certain conditions, the Group may designate a recognised asset or liability, a firm commitment, highly probable forecast transaction or net investment of a foreign operation into a formal hedge accounting relationship with a derivative that has been entered to manage interest rate and/or foreign exchange risks present in the hedged item. The Group, as a policy choice to continue to apply hedge accounting in accordance with IAS 39. The Group applied IBOR reform Phase 2 reliefs in respect of hedging relationships directly affected by IBOR reform.

There are three categories of hedge relationships:

•      Fair value hedge: to manage the fair value of interest rate and/or foreign currency risks of recognised assets or liabilities or firm commitments

•      Cash flow hedge: to manage interest rate or foreign exchange risk of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction

•      Net investment hedge: to manage the structural foreign exchange risk of an investment in a foreign operation

The Group assesses, both at hedge inception and on a quarterly basis, whether the derivatives designated in hedge relationships are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedges are considered to be highly effective if all the following criteria are met:

•      At inception of the hedge and throughout its life, the hedge is prospectively expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk

•      Prospective and retrospective effectiveness of the hedge should be within a range of 80-125%. This is tested using regression analysis

•      This is tested using regression analysis where the slope of the regression line must be between -0.80 and -1.25 and the data pairs between the hedged item and the hedging instrument are regressed to a 95% confidence interval. The regression co-efficient (R squared), which measures the correlation between the variables in the regression, is at least 80%

In the case of the hedge of a forecast transaction, the transaction must have a high probability of occurring and must present an exposure to variations in cash flows that are expected to affect reported profit or loss.

Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are recorded in net trading income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the income statement over the remaining term to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income statement. For financial assets classified as fair value through other comprehensive income, the hedge accounting adjustment attributable to the hedged risk is included in net trading income to match the hedging derivative.

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Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedging instruments are initially recognised in other comprehensive income, accumulating in the cash flow hedge reserve within equity. These amounts are subsequently recycled to the income statement in the periods when the hedged item affects profit or loss. Both the derivative fair value movement and any recycled amount are recorded in the 'Cashflow hedges' line item in other comprehensive income.

The Group assesses hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. The hypothetical derivative and the actual derivative are regressed to establish the statistical significance of the hedge relationship. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the net trading income immediately.

If a cash flow hedge is discontinued, the amount accumulated in the cash flow hedge reserve is released to the income statement as and when the hedged item affects the income statement.

Should the Group consider the hedged future cash flows are no longer expected to occur due to reasons, the cumulative gain or loss will be immediately reclassified to profit or loss.

Net investment hedge

Hedges of net investments are accounted for in a similar manner to cash flow hedges, with gains and losses arising on the effective portion of the hedges recorded in the line 'Exchange differences on translation of foreign operations' in other comprehensive income, accumulating in the translation reserve within equity. These amounts remain in equity until the net investment is disposed of. The ineffective portion of the hedges is recognised in the net trading income immediately.

The tables below analyse the notional principal amounts and the positive and negative fair values of derivative financial instruments. Notional principal amounts are the amounts of principal underlying the contract at the reporting date.

Derivatives	2024				2023
	Notional principal amounts $million	Assets $million	Liabilities $million		Notional principal amounts $million	Assets $million	Liabilities  $million
Foreign exchange derivative contracts:
Forward foreign exchange contracts	4,923,991	54,913	51,128		3,628,067	30,897	32,601
Currency swaps and options	1,377,308	18,104	18,720		1,145,702	11,671	12,845
	6,301,299	73,017	69,848		4,773,769	42,568	45,446
Interest rate derivative contracts:
Swaps	6,267,261	20,600	22,282		4,841,616	53,735	55,241
Forward rate agreements and options	294,705	2,233	2,771		313,253	2,057	2,520
	6,561,966	22,833	25,053		5,154,869	55,792	57,761
Exchange traded futures and options	383,528	30	27		325,051	39	47
Credit derivative contracts	227,675	397	2,320		281,130	485	1,107
Equity and stock index options	10,678	351	194		8,671	75	166
Commodity derivative contracts	142,393	1,274	1,052		117,436	970	1,029
Gross total derivatives	13,627,539	97,902	98,494		10,660,926	99,929	105,556
Offset1	-	(16,430)	(16,430)		-	(49,495)	(49,495)
Total derivatives	13,627,539	81,472	82,064		10,660,926	50,434	56,061

1 In 2024, the Group migrated contracts from Collateralized to Market (CTM) to Settled to Market (STM) for house cleared contracts with London Clearing House

The Group limits exposure to credit losses in the event of default by entering into master netting agreements with certain market counterparties. As required by IAS 32, exposures are only presented net in these accounts where they are subject to legal right of offset and intended to be settled net in the ordinary course of business.

The Group applies balance sheet offsetting only in the instance where we are able to demonstrate legal enforceability of the right to offset (e.g. via legal opinion) and the ability and intention to settle on a net basis (e.g. via operational practice).

The Group may enter into economic hedges that do not qualify for IAS 39 hedge accounting treatment, including derivative such as interest rate swaps, interest rate futures and cross currency swaps to manage interest rate and currency risks of the Group. These derivatives are measured at fair value, with fair value changes recognised in net trading income: refer to Market Risk.

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Derivatives held for hedging

The Group enters into derivative contracts for the purpose of hedging interest rate, currency and structural foreign exchange risks inherent in assets, liabilities and forecast transactions. The table below summarises the notional principal amounts and carrying values of derivatives designated in hedge accounting relationships at the reporting date.

Included in the table above are derivatives held for hedging purposes as follows:

	2024				2023
	Notional principal amounts $million	Assets $million	Liabilities $million		Notional principal amounts $million	Assets $million	Liabilities $million
Derivatives designated as fair value hedges:
Interest rate swaps	63,840	763	1,679		69,347	1,264	2,397
Currency swaps	1,035	-	56		115	10	6
	64,875	763	1,735		69,462	1,274	2,403
Derivatives designated as cash flow hedges:
Interest rate swaps	49,309	165	282		41,834	184	537
Forward foreign exchange contracts	9,193	609	1		12,071	420	183
Currency swaps	14,305	729	2		14,321	191	150
	72,807	1,503	285		68,226	795	870
Derivatives designated as net investment hedges:
Forward foreign exchange contracts	14,137	300	7		15,436	32	41
Total derivatives held for hedging	151,819	2,566	2,027		153,124	2,101	3,314

Fair value hedges

The Group issues various long-term fixed-rate debt issuances that are measured at amortised cost, including some denominated in foreign currency, such as unsecured senior and subordinated debt (see Notes 22 and 27). The Group also holds various fixed rate debt securities such as government and corporate bonds, including some denominated in foreign currency (see Note 13). These assets and liabilities held are exposed to changes in fair value due to movements in market interest and foreign currency rates.

The Group uses interest rate swaps to exchange fixed rates for floating rates on funding to match floating rates received on assets, or exchange fixed rates on assets to match floating rates paid on funding. The Group further uses cross- currency swaps to match the currency of the issued debt or held asset with that of the entity's functional currency.

Hedge ineffectiveness from fair value hedges is driven by cross-currency basis risk and interest cashflows mismatch between the hedging instruments and underlying hedged items. The amortisation of fair value hedge adjustments for hedged items no longer designated is recognised in net interest income.

At 31 December 2024 the Group held the following interest rate and cross currency swaps as hedging instruments in fair value hedges of interest and currency risk.

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Hedging instruments and ineffectiveness

Interest rate1	Notional $million	Carrying Amount		Change in fair value used to calculate hedge ineffectiveness2 $million	Ineffectiveness recognised in profit or loss $million
		Asset $million	Liability $million
Interest rate swaps - debt securities/subordinated notes issued	46,832	283	1,643	46	2
Interest rate swaps - loans and advances to customers	1,334	10	12	(5)	-
Interest rate swaps - debt securities and other eligible bills	15,674	470	24	142	2
Interest and currency risk1
Cross currency swaps - debt securities/subordinated notes issued	1,035	-	56	(52)	(1)
Cross currency swaps - debt securities and other eligible bills	-	-	-	(10)	-
Total at 31 December 2024	64,875	763	1,735	121	3
Interest rate swaps - debt securities/subordinated notes issued	45,455	381	2,267	271	(4)
Interest rate swaps - loans and advances to customers	1,203	26	1	(20)	-
Interest rate swaps - debt securities and other eligible bills	22,689	857	129	(459)	(17)
Interest and currency risk1
Cross currency swaps - debt securities/subordinated notes issued	70	-	6	(2)	-
Cross currency swaps - debt securities and other eligible bills	45	10	-	11	-
Total at 31 December 2023	69,462	1,274	2,403	(199)	(21)

1   Interest rate swaps are designated in hedges of the fair value of interest rate risk attributable to the hedged item. Cross currency swaps are used to hedge both interest rate and currency risks. All the hedging instruments are derivatives, with changes in fair value including hedge ineffectiveness recorded within net trading income

2   This represents a (loss)/gains change in fair value used for calculating hedge ineffectiveness

Hedged items in fair value hedges

	Carrying Amount			Accumulated amount of fair value hedge adjustments included in the carrying amount		Change in the value used for calculating hedge ineffectiveness1 $million	Cumulative balance of fair value adjustments from de-designated hedge relationships2 $million
	Asset $million	Liability $million		Asset $million	Liability $million
Debt securities/subordinated notes issued	-	49,616		-	1,485	7	178
Debt securities and other eligible bills	15,183	-		(353)	-	(130)	235
Loans and advances to customers	1,330	-		(4)	-	5	4
Total at 31 December 2024	16,513	49,616		(357)	1,485	(118)	417
Debt securities/subordinated notes issued	-	46,156		-	1,761	(273)	360
Debt securities and other eligible bills	21,473	-		(553)	-	431	744
Loans and advances to customers	1,183	-		(20)	-	20	13
Total at 31 December 2023	22,656	46,156		(573)	1,761	178	1,117

1 This represents a gain/(loss) change in fair value used for calculating hedge ineffectiveness

2 This represents a credit/(debit) to the balance sheet value

Income statement impact of fair value hedges

	2024 $million	2023 $million
Change in fair value of hedging instruments	121	(199)
Change in fair value of hedged risks attributable to hedged items	(118)	178
Net ineffectiveness gain/(loss) to net trading income	3	(21)
Amortisation gain to net interest income	153	232

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Cash flow hedges

The Group has exposure to market movements in future interest cash flows on portfolios of customer accounts, debt securities and loans and advances to customers. The amounts and timing of future cash flows, representing both principal and interest flows, are projected on the basis of contractual terms and other relevant factors, including estimates of prepayments and defaults.

The hedging strategy of the Group involves using interest rate swaps to manage the variability in future cash flows on assets and liabilities that have floating rates of interest by exchanging the floating rates for fixed rates. It also uses foreign exchange contracts and currency swaps to manage the variability in future exchange rates on its assets and liabilities and costs in foreign currencies. This is done on both a micro basis whereby a single interest rate or cross-currency swap is designated in a separate relationship with a single hedged item (such as a floating-rate loan to a customer), and on a portfolio basis whereby each hedging instrument is designated against a group of hedged items that share the same risk (such as a group of customer accounts). Hedge ineffectiveness for cash flow hedges is mainly driven by payment frequency mismatch between the hedging instrument and the underlying hedged item.

The hedged risk is determined as the variability of future cash flows arising from changes in the designated benchmark interest and/or foreign exchange rates.

Hedging instruments and ineffectiveness

	Notional $million	Carrying Amount		Change in fair value used to calculate hedge ineffectiveness1 $million	Gain recognised in OCI $million	Ineffectiveness (loss)/gain recognised in net trading income $million	Amount reclassified from reserves to income $million
		Asset $million	Liability $million
Interest rate risk
Interest rate swaps	49,309	165	282	(131)	(125)	(6)	-
Currency risk
Forward foreign exchange contract	9,193	609	1	45	45	-	-
Cross currency swaps	14,305	729	2	650	648	2	-
Total as at 31 December 2024	72,807	1,503	285	564	568	(4)	-
Interest rate risk
Interest rate swaps	41,834	184	537	612	609	3	-
Currency risk
Forward foreign exchange contract	12,071	420	183	104	103	1	-
Cross currency swaps	14,321	191	150	185	183	2	-
Total as at 31 December 2023	68,226	795	870	901	895	6	-

1 This represents a gain/(loss) change in fair value used for calculating hedge ineffectiveness

Hedged items in cash flow hedges

	2024				2023
	Change in fair value used for calculating hedge ineffectiveness1 $million	Cash flow hedge reserve $million	Cumulative balance in the cash flow hedge reserve from de-designated hedge relationships $million		Change in fair value used for calculating hedge ineffectiveness1 $million	Cash flow hedge reserve $million	Cumulative balance in the cash flow hedge reserve from de-designated hedge relationships $million
Customer accounts	(199)	(38)	104		(421)	(114)	136
Debt securities and other eligible bills	(354)	(10)	(5)		(98)	(22)	(15)
Loans and advances to customers	124	(27)	(7)		(312)	134	-
Intragroup lending currency hedge	(55)	(2)	-		(64)	-	-
Intragroup borrowing currency hedge	(84)	4	-		-	-	-
Total at 31 December	(568)	(73)	92		(895)	(2)	121

1 This represents a gain/(loss) change in fair value used for calculating hedge ineffectiveness

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Impact of cash flow hedges on profit and loss and other comprehensive income

	2024 $million	2023 $million
Cash flow hedge reserve balance as at 1 January	91	(564)
Gains recognised in other comprehensive income on effective portion of changes in fair value of hedging instruments	568	895
Gains reclassified to income statement when hedged item affected net profit	(669)	(128)
Taxation charge relating to cash flow hedges	14	(112)
Cash flow hedge reserve balance as at 31 December	4	91

Net investment hedges

Foreign currency exposures arise from investments in subsidiaries that have a different functional currency from that of the presentation currency of the Group. This risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and the Group's presentation currency, which causes the value of the investment to vary.

The Group's policy is to hedge these exposures only when not doing so would be expected to have a significant impact on the regulatory ratios of the Group and its banking subsidiaries. The Group uses foreign exchange forwards to manage the effect of exchange rates on its net investments in foreign subsidiaries.

Hedging instruments and ineffectiveness

Derivative forward currency contracts1	Carrying amount			Change in fair value used to calculate hedge ineffectiveness2 $million	Changes in the value of the hedging instrument recognised in OCI $million	Ineffectiveness recognised in profit or loss $million	Amount reclassified from reserves to income $million
	Notional $million	Asset $million	Liability $million
As at 31 December 2024	14,137	300	7	678	678	-	-
As at 31 December 2023	15,436	32	41	215	215	-	-

1 These derivative forward currency contracts have a maturity of less than one year. The hedges are rolled on a periodic basis

2 This represents a gain/(loss) change in fair value used for calculating hedge ineffectiveness

Hedged items in net investment hedges

	2024				2023
	Change in the value used for calculating hedge ineffectiveness1 $million	Translation reserve² $million	Balances remaining in the translation reserve from hedging relationships for which hedge accounting is no longer applied $million		Change in the value used for calculating hedge ineffectiveness1 $million	Translation reserve² $million	Balances remaining in the translation reserve from hedging relationships for which hedge accounting is no longer applied $million
Net investments	(678)	293	-		(215)	(9)	-

1 This represents a gain/(loss) change in fair value used for calculating hedge ineffectiveness

2 This represents the mark-to-market including accrued interest on live hedges at 31 December

Impact of net investment hedges on other comprehensive income

	2024 $million	2023 $million
Gains recognised in other comprehensive income	678	215

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Maturity of hedging instruments

Fair value hedges		2024					2023
		Less than one month	More than one month and less than one year	One to five years	More than five years		Less than one month	More than one month and less than one year	One to five years	More than five years
Interest rate swap
Notional	$million	2,763	11,260	32,030	17,787		3,242	9,789	41,545	14,771
Cross currency swap
Notional	$million	-	-	1,035	-		-	115	-	-
Average fixed interest rate (to USD) (%)	EUR	-	-	2.40	-		-	-	-	-
	GBP	-	-	-	-		-	1.33	-	-
	CNH	-	-	-	-		-	3.17	-	-
Average exchange rate	EUR/USD	-	-	0.91	-		-	-	-	-
	GBP/USD	-	-	-	-		-	0.66	-	-
	CNH/USD	-	-	-	-		-	6.37	-	-

Cash flow hedges

Interest rate swap
Notional	$million	2,428	15,589	25,943	5,349		2,129	27,634	11,664	407
Average fixed interest rate (%)	USD	5.09	4.62	4.05	3.74		5.10	3.45	4.70	3.16
Cross currency swap
Notional	$million	880	12,232	1,193	-		166	10,794	3,361	-
Average fixed interest rate (%)	HKD	-	4.07	0.21	-		-	4.97	0.21	-
	KRO	-	2.85	-	-		1.96	3.58	0.62	-
	USD						-	5.64	-	-
	TWD						(3.68)	0.77	0.81	-
	JPY/HKD	-	(0.05)	-	-		-	-	-	-
	TWO	0.53	1.04	-	-		-	-	-	-
	CNO	2.45	1.54	-	-		-	-	-	-
	JPY	0.01	0.08	-	-		-	(0.07)	(0.05)	-
Average exchange rate	HKD/USD	-	7.78	7.85	-		-	7.83	7.85	-
	KRO/USD	-	1,386.94	1,300.90	-		1,192.20	1,321	1,285	-
	USD/HKD						-	0.13	-	-
	TWD/USD						30.63	31.53	32.22	-
	TWO/USD	31.83	32.22	-	-		-	-	-	-
	CNO/USD	7.18	7.20	-	-		-	-	-	-
	JPY/HKD	-	18.12	-	-		-	17.86	18.09	-
Forward foreign exchange contracts
Notional	$million	2,044	7,149	-	-		2,194	9,877	-	-
Average exchange rate	BRL/USD	-	6.54	-	-		-	5.17	-	-
	TWD/HKD	-	-	-	-		-	3.81	-	-
	JPY/USD	147.38	145.65	-	-		130.49	136	-	-

Net investment hedges

Foreign exchange derivatives
Notional	$million	14,137	-	-	-		15,436	-	-	-
Average exchange rate	CNY/USD	7.13	-	-	-		7.12	-	-	-
	KRW/USD	1,364.97	-	-	-		1,283	-	-	-
	AED/USD	-	-	-	-		3.67	-	-	-
	HKD/USD	7.77	-	-	-		7.80	-	-	-
	INR/USD	84.07	-	-	-		-	-	-	-