RNS Number : 1802Z
HSBC Holdings PLC
29 August 2018
Connecting customers to opportunities
HSBC aims to be where the growth is, enabling business to thrive and economies to prosper, and ultimately helping people to fulfil their hopes and realise their ambitions.
Our cover image
Guangzhou is one of China's largest and most dynamic cities. It is the capital of Guangdong Province and lies at the heart of China's Pearl River Delta (PRD), one of the country's fastest growing economic regions. The PRD in recent years has transformed from being the exporting factory floor of the world into a global leader in digital commerce and innovation. HSBC has had a presence in China for more than 150 years. China is an important part of the Group's strategy and we have branches across the PRD. In December 2017 HSBC Qianhai Securities Limited, the first joint venture securities company in mainland China to be majority-owned by a foreign bank, opened for business in the PRD.
Inside front cover image
Dubai financial district.
Our photo competition winners
This report showcases four images taken by our employees around the world. The images were selected from more than 2,100 submissions to a Group-wide photography competition. Launched in June 2017, HSBC NOW Photo is an ongoing project that encourages employees to capture and share the diverse world around them with a camera.
Our values
Our values define who we are as an organisation and make us distinctive.
Dependable
We are dependable, standing firm for what is right and delivering on commitments.
Open
We are open to different ideas and cultures, and value diverse perspectives.
Connected
We are connected to our customers, communities, regulators and each other, caring about individuals and their progress.
As a reminder
Reporting currency
We use US dollars.
Adjusted measures
We supplement our IFRS figures with adjusted measures used by management internally. These measures are highlighted with the following symbol: <>
Further explanation may be found on page 18.
In this document we use the following abbreviations to refer to reporting periods.
1H18 First half of 2018
2H17 Second half of 2017
1H17 First half of 2017
For a full list of abbreviations see page 120.
Unless stated otherwise, risk-weighted assets and capital are calculated and presented on a transitional CRD IV basis as implemented by the Prudential Regulation Authority.
Overview
2 Highlights
4 Group Chairman's statement
5 Group Chief Executive's review
6 Our strategy
8 Financial overview
12 Global businesses
16 Risk overview
Interim Management Report
18 Financial summary
30 Global businesses
38 Geographical regions
46 Risk
46 Areas of special interest
46 Key developments in the first half of 2018
46 Credit risk profile
63 Liquidity and funding risk profile
65 Market risk profile
68 Operational risk profile
68 Insurance manufacturing operations risk profile
71 Capital
71 Capital overview
71 Risk-weighted assets
73 Leverage ratio
Financial Statements
74Directors' responsibility statement
75Independent review report by PricewaterhouseCoopers LLP to HSBC Holdings plc
76 Financial Statements
82 Notes on the Financial Statements
Additional Information
111 Shareholder information
119 Cautionary statement regarding forward-looking statements
120 Abbreviations
Highlights
Our international network, access to high-growth markets, and balance sheet strength deliver long-term value for customers and shareholders.
Group performance
For the half-year ended 30 June 2018
(1H17: $10.2bn)
$10.7bn
(1H17: $12.4bn)
$12.1bn
(1H17: $26.2bn)
$27.3bn
At 30 June 2018
(31 Dec 2017: $871bn)
$865bn
(31 Dec 2017: 14.5%)
14.2%
(31 Dec 2017: $2,522bn)
$2,607bn
About HSBC
More than
38 million
customers bank with us
We employ around
229,000
people around the world1
We have around
200,000
shareholders in more than 125 countries and territories
Today, HSBC has around
3,800
offices in 66 countries and territories worldwide
Strategy highlights
In June 2018, we announced the next phase of our strategy, focused on a return to growth and value creation. This builds on our position as a leading international bank with high-return transaction banking, access to high-growth markets and balance sheet strength.
>90%
of global GDP, trade and capital flows covered by our footprint
#1
Global transaction bank2
#1
International bank in Asia3
$177bn
of total capital
For footnotes, see page 45.
Our global businesses
Our operating model consists of four global businesses and a Corporate Centre, supported by HSBC Operations Services and Technology, and 11 global functions, including: risk, finance, financial crime risk, legal, marketing and human resources.
Retail Banking and Wealth Management ('RBWM') |
Commercial Banking ('CMB') |
Global Banking and Markets ('GB&M') |
Global Private Banking ('GPB') |
We help close to 37 million customers across the world to manage their finances, buy their homes, and save and invest for the future. Our Insurance and Asset Management businesses support all our global businesses in meeting their customers' needs. |
We support approximately 1.7 million business customers in 53 countries and territories with banking products and services to help them operate and grow. Our customers range from small enterprises focused primarily on their domestic markets, through to large companies operating globally. |
We provide financial services and products to companies, governments and institutions. Our comprehensive range of products and solutions, across capital financing, advisory and transaction banking services, can be combined and customised to meet clients' specific objectives. |
We help high net worth individuals and their families to grow, manage and preserve their wealth. |
Adjusted profit before tax <> |
(1H17: $3.4bn) |
(1H17: $3.6bn) |
(1H17: $3.5bn) |
(1H17: $0.1bn) |
$3.6bn |
$4.1bn |
$3.6bn |
$0.2bn |
Adjusted risk-weighted assets <> |
(31 Dec 2017: $119.5bn) |
(31 Dec 2017: $294.7bn) |
(31 Dec 2017: $295.7bn) |
(31 Dec 2017: $15.9bn) |
$124.1bn |
$315.1bn |
$284.5bn |
$17.0bn |
<> Our global businesses are presented on an adjusted basis, which is consistent with the way in which
we assess their performance.
Delivery against Group financial targets
Return on tangible equity 9.7% |
Adjusted jaws <> -5.6% |
Dividends per ordinary share in respect of 1H18 $0.20 |
For further details, see page 11.
Group Chairman's statement
At the start of the year, I spoke of the Board's focus on enhancing HSBC's performance and reputation. The Group has made a good start in both regards.
The strength of our global businesses underlines the potential of the Group to make further revenue and market share gains, and provides room to invest in revenue growth, resilience, and technology to support our customers. These are all necessary to further strengthen HSBC's reputation among our many stakeholders.
The strategy that John Flint, the Group Chief Executive, unveiled in June is designed to unlock this potential. We have created a strategy that builds on past achievements to improve the Group's competitiveness and increase value for shareholders. It focuses on areas where HSBC is already strong, but which also hold the greatest capacity for revenue growth and value creation. This demonstrates the many competitive advantages the Group already enjoys.
Investing in the future of the business is a key pillar of the bank's strategy. No business can hope to thrive unless it anticipates and adapts to the changes around it. Technological change, in particular, will only accelerate in the coming years. Being able to invest thoughtfully and at scale at this point in the cycle will differentiate future winners from the rest of the industry.
This edge was evident in the first half of 2018. Our award-winning PayMe app acquired its millionth user and is now an established part of the daily lives of people and business in Hong Kong. In May, HSBC executed the first ever live trade finance transaction using scalable blockchain technology, making an important breakthrough in an area previously rich in potential but low on delivery. In July, we announced an expansion of our use of Google Cloud technology, increasing access to some of the leading machine learning and data analytics technology in the world. These are just a few examples of how we are marrying emerging technology with the needs and expectations of our customers.
We are also investing to keep our customers safe. Both the Board and management remain unequivocally committed to safeguarding our clients and delivering industry-leading financial crime standards. This is a permanent priority for everyone at HSBC.
Our global businesses continue to benefit from the economic growth trends we identified at our 2017 Annual Results presentation. The diversity of the Group underpins our ability to manage the external environment effectively. We remain cautiously optimistic for global growth in the remainder of the year. In particular, the fundamentals of Asia remain strong despite rising concerns around the future of international trade and protectionism.
The Board has appointed Jonathan Symonds as the Deputy Group Chairman of HSBC Holdings plc. Jon already serves as the senior independent director. He takes up this new role today and steps down as Chairman of HSBC Bank plc. I am delighted that Jon has agreed to support me in this new capacity.
I am very grateful to all our people for the excellent work that they do in service of the bank, our customers and each other. Our results for the first half demonstrate that the Group has strong foundations. I have every confidence that we will build on them further.
Mark E Tucker
Group Chairman
6 August 2018
Group Chief Executive's review
In June this year, I announced eight strategic priorities for the bank between now and 2020. These have two aims - to get HSBC back to growth and to create value.
We will seek to achieve these aims by increasing returns from the Group's areas of strength, particularly in Asia and across our network; turning around low-return businesses of high strategic importance, particularly in the United States; investing in building a bank for the future with the customer at its centre; and making it easier for our colleagues to do their jobs.
Our first-half performance both reflected these intentions and met our expectations. We grew reported and adjusted revenue in our four global businesses relative to the same period last year, creating the room to invest at the start of this strategy phase while remaining committed to achieving full-year positive adjusted jaws.
Our investment in the first half included hiring more front-line staff in our strongest businesses and expanding our digital capabilities in core markets, both of which will improve the service we offer customers. Our first-half reported and adjusted operating expenses rose as a consequence, which contributed to a drop in adjusted profit before tax. We continued to benefit from a low credit-loss environment in the first half.
Retail Banking and Wealth Management, and Commercial Banking were again our strongest performing businesses. Both continued to gain from a positive interest rate environment, and used the benefits of past investment to grow lending and deposit balances, particularly in Asia and the UK.
Strong adjusted revenue growth in Commercial Banking was supported by our leading transaction banking capabilities. Global Liquidity and Cash Management had another excellent six months, and Global Trade and Receivables Finance made further progress in its core markets.
Adjusted revenue growth in Retail Banking and Wealth Management was underpinned by higher retail deposit balances and strong Wealth Management product sales in Hong Kong. We also grew our share of the UK mortgage market.
Global Banking and Markets had a steady first half. Strong performances from Global Liquidity and Cash Management, Securities Services and Foreign Exchange more than covered the impact of lower client activity in Rates and Credit.
Global Private Banking enjoyed a successful six months, growing adjusted revenue and attracting net new money through collaboration with our other global businesses.
HSBC UK Bank plc - our UK ring-fenced bank - commenced business on 1 July, six months ahead of the legal deadline. Ringfencing presents a major opportunity to get closer to our 14.5 million personal and business customers in the UK.
HSBC is a strong business with a number of clear commercial advantages. In particular, we are a leading international bank with a network that gives us unparalleled access to high-growth markets, particularly in Asia and the Middle East. Our aim for this next strategy phase is to build on these strengths to grow profits consistently, leading to the creation of value for shareholders. With a period of significant restructuring now behind us, and with monetary policy in the US-dollar bloc normalising, it is now time to realise the potential of the Group.
John Flint
Group Chief Executive
6 August 2018
Our strategy
Our long-term strategy positions us to capture value from our international network, capitalising on global trends affecting the industry and our unique combination of strategic advantages.
Strategic advantages
Leading international bank
More than 50% of Group client revenue connected to the network
No. 1 global transaction bank2, gaining market share
Recognised by customers as leading international bank
Unparalleled access to high-growth markets
Access to high-growth developing markets in Asia, the Middle East and Latin America
Investment aligned to high-growth markets to deliver shareholder value
Committed to enhanced customer service and investments in technology to help capture growth opportunities
1H18 revenue: $27.3bn
Balance sheet strength
Strong capital, funding and liquidity position with diversified business model
Conservative approach to credit risk and liquidity management
Low earnings volatility
Foundation for sustained dividend; strong capacity for distribution to shareholders
For footnotes, see page 45
HSBC has entered the next phase of its strategy, focused on growth and value creation. To achieve this, eight strategic priorities have been put together with targeted outcomes by 2020. These eight priorities aim to deliver growth, turn around low-return businesses, put our customers at the centre, and empower our people.
|
Strategic priorities |
Targeted outcome by 2020 |
|
|
|
|
Deliver growth from areas of strength |
1 |
Accelerate growth from our Asian franchise - Build on strength in Hong Kong - Invest in Pearl River Delta, ASEAN, and Wealth in Asia (incl. Insurance and Asset Management) Be the leading bank to support drivers of global investment: China-led Belt and Road Initiative and the transition to a low-carbon economy |
- High single-digit revenue growth p.a. from Asian franchise - Market share gains in eight scale markets6 - No. 1 international bank for Belt and Road Initiative - $100bn in sustainable financing and investment7 |
|
2 |
Complete establishment of UK ring-fenced bank, grow mortgage market share, grow commercial customer base, and improve customer service |
- Market share gains |
|
3 |
Gain market share and deliver growth from our international network |
- Mid to high single-digit revenue growth p.a. from international network - Market share gains in Transaction Banking |
|
|
|
|
Turnaround of low-return businesses |
4 |
Turn around our US business |
- US return on tangible equity >6% |
5 |
Improve capital efficiency; redeploy capital into higher-return businesses |
- Increase in asset productivity |
|
|
|
|
Build a bank for the future that puts the customer at the centre |
6 |
Create capacity for increasing investments in growth and technology through efficiency gains |
- Positive adjusted jaws, on an annual basis, each financial year |
7 |
Enhance customer centricity and customer service through investments in technology - Invest in digital capabilities to deliver improved customer service - Expand the reach of HSBC, including partnerships - Safeguard our customers and deliver industry-leading financial crime standards |
- Improve customer satisfaction in eight scale markets8 |
|
|
|
|
Empower our people |
8 |
Simplify the organisation and invest in future skills |
- Improved employee engagement - ESG rating: 'Outperformer'9 |
For footnotes, see page 45
Financial overview
Reported results
This table shows our reported results for the last three half-years, ended 30 June 2018 ('1H18'), 31 December 2017 ('2H17') and 30 June 2017 ('1H17').
Under IFRS 9, the recognition and measurement of expected credit losses differs from the approach under IAS 39. The change in expected credit losses relating to financial assets under IFRS 9 is recorded in the income statement under 'change in expected credit losses and other credit impairment charges' ('ECL'). As prior periods have not been restated, changes in impairment of financial assets in the comparative periods remain in accordance with IAS 39 and are recorded in the income statement under 'loan impairment charges and other credit risk provisions' ('LICs') and are therefore not necessarily comparable to ECL recorded for the current period.
All commentary in this Financial overview compares the 1H18 results with 1H17, unless otherwise stated.
|
Half-year to |
Reported results |
30 Jun 2018 $m |
30 Jun 2017 $m |
31 Dec 2017 $m |
Net operating income before change in expected credit losses and other credit impairment charges ('revenue') |
27,287 |
|
26,166 |
|
25,279 |
|
ECL/LICs |
(407 |
) |
(663 |
) |
(1,106 |
) |
Net operating income |
26,880 |
|
25,503 |
|
24,173 |
|
Total operating expenses |
(17,549 |
) |
(16,443 |
) |
(18,441 |
) |
Operating profit |
9,331 |
|
9,060 |
|
5,732 |
|
Share of profit in associates and joint ventures |
1,381 |
|
1,183 |
|
1,192 |
|
Profit before tax |
10,712 |
|
10,243 |
|
6,924 |
|
Reported profit before tax
Reported profit before tax of $10.7bn was $0.5bn or 5% higher than in 1H17, reflecting net favourable movements in significant items and favourable foreign currency translation differences, which are described in more detail on page 18. Excluding significant items and currency translation, profit before tax decreased by $0.2bn or 2%.
Reported revenue
Reported revenue of $27.3bn was $1.1bn or 4% higher. This included the favourable effects of foreign currency translation of $0.9bn, which were partly offset by a net adverse movement in significant items of $0.4bn. Significant items included:
- a loss on disposals, acquisitions and investment in new businesses of $0.1bn in 1H18, mainly relating to the early redemption of subordinated debt in the US. This compared with a gain of $0.4bn in 1H17, largely related to the disposal of our membership interest in Visa Inc.; and
- lower adverse fair value movements on financial instruments (down $0.1bn).
Excluding significant items and the effects of foreign currency translation, revenue increased by $0.6bn or 2%, reflecting higher revenue across all of our global businesses, partly offset by a reduction in Corporate Centre.
Reported ECL/LICs
The reported ECL were $0.4bn in 1H18. This mainly related to charges of $0.5bn in RBWM, partly offset by net releases of ECL in GB&M ($0.1bn) and Corporate Centre ($0.1bn).
In 1H17, reported LICs of $0.7bn mainly related to RBWM ($0.6bn) and CMB ($0.1bn).
The effect of foreign currency translation between the periods was minimal.
Reported operating expenses
Reported operating expenses of $17.5bn were $1.1bn or 7% higher and included an adverse effect of foreign currency translation of $0.7bn, offset by a favourable movement in significant items of $0.8bn, which included:
- the non-recurrence of costs to achieve of $1.7bn in 1H17; and
- customer redress programme costs of $0.1bn in 1H18, compared with $0.3bn in 1H17.
These were partly offset by:
- settlements and provisions in connection with legal matters of $0.8bn in 1H18, compared with a net release of $0.3bn in 1H17.
-
Excluding significant items and the favourable effects of foreign currency translation, operating expenses increased by $1.2bn, primarily reflecting investment for growth.
Reported income from associates and joint ventures
Reported income from associates and joint ventures of $1.4bn increased by $0.2bn, and included the favourable effects of foreign currency translation of $0.1bn.
Adjusted performance
Our reported results are prepared in accordance with IFRSs, as detailed in the Financial Statements on page 76.
We also present adjusted performance measures to align internal and external reporting, identify and quantify items management believes to be significant, and provide insight into how management assesses period-on-period performance. Adjusted performance measures are highlighted with the following symbol: <>
To derive adjusted performance, we adjust for:
- the period-on-period effects of foreign currency translation; and
- the effect of significant items that distort period-on-period comparisons, which are excluded in order to understand better the underlying trends in the business.
For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 32.
Adjusted results <>
This table shows our adjusted results for 1H18 and 1H17. These are discussed in more detail on the following pages.
Adjusted results <> |
Half-year to |
|
Movements compared with 1H17 |
30 Jun 2018 $m |
30 Jun 2017 $m |
|
Adverse |
Favourable |
% |
Revenue |
27,535 |
|
26,957 |
|
|
|
578 |
|
2 |
|
ECL/LICs |
(407 |
) |
(657 |
) |
|
|
250 |
|
|
Total operating expenses |
(16,370 |
) |
(15,195 |
) |
|
(1,175 |
) |
|
(8 |
) |
Operating profit |
10,758 |
|
11,105 |
|
|
(347 |
) |
|
(3 |
) |
Share of profit in associates and joint ventures |
1,381 |
|
1,259 |
|
|
|
122 |
|
10 |
|
Profit before tax |
12,139 |
|
12,364 |
|
|
(225 |
) |
|
(2 |
) |
Adjusted profit before tax<>
On an adjusted basis, profit before tax of $12.1bn was $0.2bn or 2% lower. Revenue increased by $0.6bn and income from associates and joint ventures rose by $0.1bn. In addition, ECL in 1H18 were $0.4bn, compared with LICs of $0.7bn in 1H17. These favourable movements were more than offset by an increase in operating expenses of $1.2bn in 1H18, which included the ongoing impact of a number of investment programmes launched in 2H17, including investments to grow the business and investments in digital. This increase in operating expenses resulted in 1H18 adjusted jaws of negative 5.6%.
Reconciliation of reported to adjusted profit before tax
|
Half-year to |
30 Jun 2018 $m |
30 Jun 2017 $m |
Adjusted profit before tax |
12,139 |
|
12,364 |
|
Currency translation |
|
(289 |
) |
Significant items: |
(1,427 |
) |
(1,832 |
) |
- costs of structural reform |
(211 |
) |
(180 |
) |
- costs to achieve 10 |
- |
|
(1,670 |
) |
- customer redress programmes |
(54 |
) |
(299 |
) |
- disposals, acquisitions and investment in new businesses |
(145 |
) |
348 |
|
- fair value movements on financial instruments |
(152 |
) |
(245 |
) |
- restructuring and other related costs |
(24 |
) |
- |
|
- settlements and provisions in connection with legal and regulatory matters11 |
(841 |
) |
322 |
|
- currency translation on significant items |
|
(108 |
) |
Reported profit before tax |
10,712 |
|
10,243 |
|
For footnotes, see page 45.
Adjusted revenue <>
Adjusted revenue of $27.5bn was $0.6bn or 2% higher, reflecting growth in all of our global businesses, partly offset by a reduction in Corporate Centre.
- In RBWM, revenue increased by $0.8bn or 8%, with growth in both Retail Banking and Wealth Management. In Retail Banking, revenue grew in current accounts, savings and deposits, reflecting wider margins and balance growth, primarily in Hong Kong, partly offset by lower personal lending revenue. In Wealth Management, revenue also increased mainly from investment distribution, primarily in Hong Kong reflecting increased investor confidence. This was partly offset by lower life insurance manufacturing revenue, largely from a net adverse movement in market impacts.
- In CMB, revenue increased by $0.8bn or 12%, notably in Global Liquidity and Cash Management ('GLCM'), as we benefited from wider deposit margins and higher balances, primarily in Hong Kong and the US. In addition, revenue increased in Credit and Lending ('C&L'), notably in the UK, North America and Latin America as lending growth more than offset narrower margins.
- In GB&M, revenue was $0.1bn or 1% higher. Strong growth in GLCM and Securities Services reflected interest rate rises and deposit balance growth, primarily in Asia. Revenue also increased in Principal Investments, from the revaluation of certain investments. These increases were partly offset by lower revenue in Global Markets as Rates and Credit revenue fell due to narrower margins and lower activity in emerging markets, partly offset by an increase in Foreign Exchange revenue.
- In GPB, revenue was $0.1bn or 6% higher, mainly in Hong Kong from higher deposit revenue as we benefited from wider margins, and from higher investment revenue, reflecting increased client activity.
- In Corporate Centre, we recorded net negative revenue of $0.2bn in 1H18, compared with revenue of $1.0bn in 1H17. This primarily reflected lower revenue in Central Treasury due to higher adverse fair value movements relating to the hedging of our long-term debt, a reduction in Balance Sheet Management ('BSM') revenue and a loss arising from swap mark-to-market movements following a bond reclassification under IFRS 9 'Financial Instruments'. Revenue from legacy portfolios also decreased, mainly driven by losses on portfolio disposals.
Adjusted revenue <> |
Half-year to |
|
|
30 Jun 2018 $m |
30 Jun 2017 $m |
Variance $m |
% |
RBWM |
11,065 |
|
10,283 |
|
782 |
|
8 |
|
CMB |
7,439 |
|
6,622 |
|
817 |
|
12 |
|
GB&M |
8,265 |
|
8,192 |
|
73 |
|
1 |
|
GPB |
929 |
|
874 |
|
55 |
|
6 |
|
Corporate Centre |
(163 |
) |
986 |
|
(1,149 |
) |
(117 |
) |
Total |
27,535 |
|
26,957 |
|
578 |
|
2 |
|
Adjusted ECL/LICs <>
Adjusted ECL of $0.4bn mainly related to charges in RBWM ($0.5bn), notably in Mexico and the UK, and to a lesser extent in Hong Kong, against our unsecured lending portfolios. These charges were partly offset by net releases in Corporate Centre related to our legacy credit portfolio, as well as in GB&M, where net releases relating to a small number of clients in the US were partly offset by charges in the UK.
In 1H17, adjusted LICs of $0.7bn mainly related to RBWM ($0.6bn). This included LICs in Mexico reflecting our strategic growth in unsecured lending and an associated rise in delinquency, and also in the UK against unsecured lending. In CMB, LICs of $0.1bn in 1H17 included charges in Hong Kong related to a small number of customers, partly offset by net releases across multiple sectors in the US and Canada.
Adjusted operating expenses <>
Adjusted operating expenses of $16.4bn were $1.2bn or 8% higher. This primarily reflected continued investments to grow the business ($0.5bn), notably in RBWM and GB&M, and continued investment in digital across all global businesses ($0.2bn), as well as an increase in variable pay ($0.2bn).
Our total investment in regulatory and compliance programmes in 1H18 was $1.6bn, up $0.1bn or 6%. This reflected the continued focus on our Global Standards programme to ensure that changes we have made are effective and sustainable. These costs included expenditures incurred to deliver the programmes, as well as recurring costs to maintain the activities.
The number of employees expressed in full-time equivalent staff ('FTEs') at 30 June 2018 was 229,195, an increase of 508 from 31 December 2017. This was primarily driven by investments in business growth programmes.
Adjusted income from associates and joint ventures<>
Adjusted income from associates and joint ventures of $1.4bn increased by $0.1bn, primarily reflecting higher income from Bank of Communications Co., Limited ('BoCom').
Balance sheet and capital
Balance sheet strength
Total reported assets were $2.6tn or 4% higher than at 1 January 2018 on a reported basis, and 5% higher on a constant currency basis. This reflects our continuing targeted asset growth, notably in Asia.
Distributable reserves
The distributable reserves of HSBC Holdings at 30 June 2018 were $36.5bn, compared with $38.0bn at 31 December 2017. The decrease was primarily driven by distributions to shareholders of $6.3bn, which were higher than profits generated of $4.7bn, and certain other movements broadly offset one another, including IFRS 9 transitional adjustments, share buy-backs and fair value gains net of tax due to movements in our own credit risk.
Capital strength
We manage our capital aiming to ensure we exceed current regulatory requirements and are well placed to meet those expected in the future. We monitor our position using capital ratios. These measure capital relative to a regulatory assessment of risks taken. We quantify how these risks relate to our business using RWAs.
Our common equity tier 1 ('CET1') ratio at 30 June 2018 was 14.2%, down from 14.5% at 31 December 2017.
Adoption of IFRS 9 'Financial Instruments'
HSBC adopted the requirements of IFRS 9 on 1 January 2018, with the exception of the provisions relating to the presentation of gains and losses on financial liabilities designated at fair value, which were adopted from 1 January 2017. The adoption of IFRS 9 reduced our net assets at 1 January 2018 by $1.6bn.
Further explanation of the impact of the implementation of IFRS 9 is provided in Note 1 on the Financial Statements on page 82.
Delivery against Group financial targets
Return on tangible equity
Our target is to achieve a reported return on tangible equity ('RoTE') of more than 11% by the end of 2020. We intend to do this with a CET1 ratio of greater than 14%.
RoTE is calculated as reported profit attributable to ordinary shareholders less changes in goodwill and present value of in-force long-term insurance business, divided by average tangible shareholders' equity. A targeted reported RoTE of 11% in 2020 is broadly equivalent to a reported return on equity ('RoE') of 10%.
In the first half of 2018, we achieved a RoTE of 9.7%, compared with 9.9% in the first half of 2017.
Adjusted jaws <>
Our target is to maintain positive adjusted jaws on an annual basis.
Jaws measures the difference between the rates of change in revenue and operating expenses. Positive jaws occurs when the figure for the percentage change in revenue is higher than, or less negative than, the corresponding rate for operating expenses.
We calculate adjusted jaws using adjusted revenue and adjusted operating expenses.
In 1H18, adjusted revenue increased by 2.1%, whereas our adjusted operating expenses increased by 7.7%. Adjusted jaws was therefore negative 5.6%.
Adjusted revenue up |
|
2.1 |
% |
|
|
Adjusted jaws |
|
-5.6 |
% |
Adjusted costs up |
|
7.7 |
% |
|
Dividends
We plan to sustain the annual dividend in respect of the year at its current level for the foreseeable future. Growing our dividend in the future will depend on the overall profitability of the Group, delivering further release of less efficiently deployed capital and meeting regulatory capital requirements in a timely manner.
Global businesses
We manage our products and services globally through our global businesses.
The 'Management view of adjusted revenue' tables provide a breakdown of revenue by major products, and reflect the basis on which revenue performance of each business is assessed and managed.
Commentary is on an adjusted basis, which is consistent with how we assess the performance of our global businesses. <>
Retail Banking and Wealth Management
RBWM serves close to 37 million customers worldwide through four main businesses: Retail Banking, Wealth Management, Asset Management, and Insurance. Our HSBC Premier and Advance propositions are aimed at mass affluent and emerging affluent customers who value international connectivity and benefit from our global reach and scale. For customers with simpler banking needs, RBWM offers a full range of products and services reflecting local requirements.
Key events
- Continued progress with our digital transformation through the enhancement of customer journeys and product features, including the PayMe app in Hong Kong, which has one million users, and the Connected Money app in the UK, which has had 100,000 downloads since its launch in May 2018. Over 80% of global equity sales and a significant part of retail sales are made digitally.
- Delivering on unsecured lending growth, supported by new offers and marketing initiatives. Strong progress in new credit cards issuance in 1H18, notably in the UK (282,000), mainland China (221,000, including 101,000 in the PRD) and the US (135,000).
Financial performance
Adjusted profit before tax of $3.6bn was $0.2bn or 7% higher, reflecting strong revenue growth, partly offset by higher operating expenses.
Adjusted revenue of $11.1bn was $0.8bn or 8% higher.
In Retail Banking, the increase reflected:
- Higher current accounts, savings and deposits, up $0.8bn due to wider margins and balance growth, mainly in Hong Kong.
- Lower personal lending revenue, which reduced by $0.2bn, despite growth in total lending balances of $27bn, or 8% compared with 1H17. This reflected the effects of mortgage margin compression from higher funding costs, mainly in the UK, Hong Kong, mainland China and the US. Lower credit cards revenue reflected margin compression in Turkey and policy tightening in Mexico and the UAE.
Wealth Management was up from:
- Higher investment distribution revenue, up $0.3bn, reflecting higher sales of retail securities and mutual funds, notably in Hong Kong, following increased investor confidence.
- Life insurance manufacturing generated growth in annualised new business premiums (up 22%), which was more than offset by net adverse market impacts of $0.3bn. Therefore, total life insurance manufacturing revenue decreased by $0.2bn.
Adjusted ECL were $0.5bn in 1H18 mainly related to charges in Mexico, the UK and Hong Kong, notably against unsecured lending. These new allowances broadly offset write-offs, and the credit quality of our loan portfolio remained stable.
In 1H17, adjusted LICs of $0.6bn were notably related to charges in Mexico, the UK and Hong Kong against unsecured lending balances.
Adjusted operating expenses of $6.9bn increased by $0.6bn or 9%, driven by investments in digital capabilities and marketing to help deliver improved customer services, and investments to grow the business, particularly in the UK, Hong Kong, mainland China (including PRD) and the US. In addition, staff numbers increased as we invested in front-line growth and technology initiatives, including in Hong Kong and the PRD.
Management view of adjusted revenue <> |
Half-year to |
|
1H18 vs 1H17 |
30 Jun 2018
$m |
30 Jun 2017 $m |
31 Dec 2017
$m |
|
$m |
% |
Retail Banking |
7,413 |
|
6,756 |
|
6,894 |
|
|
657 |
|
10 |
|
Current accounts, savings and deposits |
3,889 |
|
3,072 |
|
3,311 |
|
|
817 |
|
27 |
|
Personal lending |
3,524 |
|
3,684 |
|
3,583 |
|
|
(160 |
) |
(4 |
) |
- mortgages |
1,095 |
|
1,209 |
|
1,199 |
|
|
(114 |
) |
(9 |
) |
- credit cards |
1,451 |
|
1,512 |
|
1,412 |
|
|
(61 |
) |
(4 |
) |
- other personal lending 12 |
978 |
|
963 |
|
972 |
|
|
15 |
|
2 |
|
Wealth Management |
3,380 |
|
3,278 |
|
2,991 |
|
|
102 |
|
3 |
|
- investment distribution 13 |
1,907 |
|
1,628 |
|
1,678 |
|
|
279 |
|
17 |
|
- life insurance manufacturing |
919 |
|
1,117 |
|
766 |
|
|
(198 |
) |
(18 |
) |
- asset management |
554 |
|
533 |
|
547 |
|
|
21 |
|
4 |
|
Other 14 |
272 |
|
249 |
|
395 |
|
|
23 |
|
9 |
|
Net operating income 15 |
11,065 |
|
10,283 |
|
10,280 |
|
|
782 |
|
8 |
|
Adjusted RoRWA (%)16 |
6.0 |
|
6.0 |
|
5.3 |
|
|
|
|
RoTE excluding significant items and UK bank levy (%)17 |
21.3 |
|
22.6 |
|
21.6 |
|
|
|
|
For footnotes, see page 45.
Commercial Banking
CMB serves approximately 1.7 million customers in 53 countries and territories. Our customers range from small enterprises focused primarily on their domestic markets through to corporates operating globally. We support customers with tailored financial products and services to allow them to operate efficiently and grow.
Services provided include working capital, term loans, payment services and international trade facilitation, as well as expertise in mergers and acquisitions, and access to financial markets.
Key events
- Corporate customer value from our international subsidiary banking proposition grew 18%* compared with 1H17, demonstrating the value of our global network.
- We further strengthened our leadership position in GLCM through investment in our digital capabilities, including mobile facial recognition technology, and collaboration with PayPal to help companies manage their liquidity and payments in real time.
- We continue to embrace new technologies in Global Trade and Receivables Finance ('GTRF'), demonstrated through the completion of four live trades on the we.trade blockchain platform, the world's first commercially scalable Distributed Ledger Technology platform for open account trade.
Financial performance
Adjusted profit before tax of $4.1bn was $0.5bn or 15% higher, reflecting higher revenue and low levels of ECL. This was partly offset by an increase in operating expenses.
Adjusted revenue of $7.4bn was $0.8bn or 12% higher, mainly driven by increases in GLCM and C&L. Revenue also increased in Markets products, Insurance and Investments, notably in Asia, and in GTRF.
- In GLCM, revenue increased by $0.5bn or 20%, primarily in Hong Kong and the US, mainly reflecting wider margins and increased balances, with notable growth in Asia, North America and Europe.
- In C&L, revenue was $0.1bn or 5% higher. Revenue grew in the UK, North America and Latin America as lending growth more than offset narrower margins. Revenue also grew in Asia, as balance growth in Hong Kong more than offset the effects of margin compression, in part reflecting competitive pressures.
- In GTRF, revenue was $18m or 2% higher, driven by balance sheet growth in the UK and Asia, mainly in mainland China. This was partly offset by a reduction in revenue in the Middle East and North Africa ('MENA'), reflecting the effects of managed customer exits in the UAE.
Adjusted ECL were $55m in 1H18, as charges in MENA, Latin America and Europe were partly offset by releases in North America and Hong Kong. In 1H17, net adjusted LICs of $109m related to charges in Hong Kong, across various sectors, partly offset by net releases in North America and the UK.
Adjusted operating expenses were $0.3bn or 11% higher. This reflected increases in: staff costs, including higher variable pay; our continued investment in digital capabilities; regulatory programme and compliance costs; and inflation.
Management view of adjusted revenue <> |
Half-year to |
|
1H18 vs 1H17 |
30 Jun 2018
$m |
|
31 Dec 2017
$m |
|
$m |
% |
Global Trade and Receivables Finance |
943 |
|
925 |
|
910 |
|
|
18 |
|
2 |
|
Credit and Lending |
2,672 |
|
2,545 |
|
2,594 |
|
|
127 |
|
5 |
|
Global Liquidity and Cash Management |
2,793 |
|
2,336 |
|
2,480 |
|
|
457 |
|
20 |
|
Markets products, Insurance and Investments, and Other 18 |
1,031 |
|
816 |
|
899 |
|
|
215 |
|
26 |
|
Net operating income 15 |
7,439 |
|
6,622 |
|
6,883 |
|
|
817 |
|
12 |
|
Adjusted RoRWA (%)16 |
2.7 |
|
2.5 |
|
2.3 |
|
|
|
|
RoTE excluding significant items and UK bank levy (%)17
|
15.1 |
|
14.8 |
|
14.0 |
|
|
|
|
For footnotes, see page 45.
*Analysis relates to corporate client income, which includes total income from GB&M products, including Foreign Exchange and Debt Capital Markets. This measure differs from reported revenue in that it excludes Business Banking and Other and internal cost of funds.
Global Banking and Markets
GB&M serves approximately 4,100 clients in more than 50 countries and territories. It supports major government, corporate and institutional clients worldwide. Our product specialists continue to deliver a comprehensive range of transaction banking, financing, advisory, capital markets and risk management services.
Key events
- Leading the way with the digitisation of Trade Finance by completing the first transaction using blockchain Distributed Ledger Technology in the banking industry.
- We acted as green structuring adviser on a $1.25bn green sukuk bond for the Republic of Indonesia, the first ever international offering of green securities by an Asian sovereign.
Financial performance
Adjusted profit before tax of $3.6bn was $25m or 1% higher, reflecting increased revenue and a net ECL release in 1H18, compared with LICs in 1H17. This was partly offset by higher operating expenses as we continued to invest in the business.
Adjusted revenue of $8.3bn was $0.1bn or 1% higher, and included a net favourable movement of $54m on credit and funding valuation adjustments. This reflected:
- Strong GLCM revenue growth of $0.2bn, or 19%, across all regions, mainly in Asia, from continued momentum since 2017, benefiting from higher average balances since 1H17 (up 7%) and higher interest rates.
- Double-digit revenue growth in Securities Services (up $0.1bn) reflected growth of over 10% in both assets under custody and assets under administration since 1H17, primarily in Asia as we continued to win new business. The increase in revenue was also from higher interest rates, which more than offset margin compression.
- Principal Investments revenue increased by $0.1bn, reflecting the revaluation of certain investments.
- Global Banking revenue was $24m or 1% higher, as Leveraged and Acquisition Finance continued to perform well, with notable client wins, and favourable movements in Credit and Lending portfolio hedges. We grew our market share in Debt Capital Markets ('DCM'), but this was more than offset by lower corporate issuances. Despite lower lending revenue, overall performance was positive, reflecting growth in fee business.
- Global Markets revenue decreased by $0.4bn. In Fixed Income, Rates and Credit revenue fell by $0.4bn and $0.2bn respectively, as a result of narrower margins and lower activity in emerging markets. By contrast, Foreign Exchange revenue grew by $0.2bn or 11%, with increased client volumes, continuing to build on a strong performance in 2017.
Net ECL releases in 1H18 of $97m related to a small number of clients in the US, notably in the oil and gas sector. These were partly offset by charges in the UK against exposures in the retail and construction sectors.
In 1H17, adjusted LICs of $40m were primarily in the US. This reflected net charges against specific clients, notably in the oil and gas, and mining sectors.
Adjusted operating expenses of $4.8bn were $0.2bn or 4% higher, driven by higher volume-related transaction costs and investments to grow the business, notably in Securities Services and Global Markets, and in HSBC Qianhai Securities, our Chinese joint venture. These increases more than offset the benefit of cost-saving initiatives.
Management view of adjusted revenue <> |
Half-year to |
|
1H18 vs 1H17 |
30 Jun 2018
$m |
30 Jun 2017
$m |
31 Dec 2017
$m |
|
$m |
% |
Global Markets |
3,474 |
|
3,907 |
|
3,026 |
|
|
(433 |
) |
(11 |
) |
- Equities |
705 |
|
697 |
|
604 |
|
|
8 |
|
1 |
|
- FICC |
2,769 |
|
3,210 |
|
2,422 |
|
|
(441 |
) |
(14 |
) |
Foreign Exchange |
1,552 |
|
1,398 |
|
1,234 |
|
|
154 |
|
11 |
|
Rates |
795 |
|
1,215 |
|
847 |
|
|
(420 |
) |
(35 |
) |
Credit |
422 |
|
597 |
|
341 |
|
|
(175 |
) |
(29 |
) |
Global Banking |
2,060 |
|
2,036 |
|
1,883 |
|
|
24 |
|
1 |
|
Global Liquidity and Cash Management |
1,274 |
|
1,070 |
|
1,166 |
|
|
204 |
|
19 |
|
Securities Services |
981 |
|
876 |
|
923 |
|
|
105 |
|
12 |
|
Global Trade and Receivables Finance |
360 |
|
370 |
|
346 |
|
|
(10 |
) |
(3 |
) |
Principal Investments |
171 |
|
83 |
|
246 |
|
|
88 |
|
>100 |
Credit and funding
valuation adjustments19 |
(44 |
) |
(98 |
) |
(170 |
) |
|
54 |
|
(55 |
) |
Other20 |
(11 |
) |
(52 |
) |
(34 |
) |
|
41 |
|
(79 |
) |
Net operating income15 |
8,265 |
|
8,192 |
|
7,386 |
|
|
73 |
|
1 |
|
Adjusted RoRWA (%)16 |
2.5 |
|
2.4 |
|
1.6 |
|
|
|
|
RoTE excluding significant items and UK bank levy (%)17 |
12.3 |
|
12.5 |
|
10.6 |
|
|
|
|
For footnotes, see page 45.
Global Private Banking
GPB serves high net worth individuals and families, including those with international banking needs.
We provide a full range of private banking services, including Investment Management, which includes advisory and brokerage services, and Private Wealth Solutions, which comprises trusts and estate planning, to protect and preserve wealth for future generations.
Key events
- Net new money inflows of $9bn in key markets targeted for growth, of which more than 60% was from collaboration with our other global businesses. Net new money inflows were mainly in Hong Kong, the UK and Channel Islands, Switzerland and the US.
- Continued momentum in discretionary and advisory mandates, with strong growth in 1H18, mainly in Switzerland, Hong Kong, Germany and the US.
Financial performance
Adjusted profit before tax of $0.2bn was $46m or 32% higher, driven by revenue growth.
Adjusted revenue of $0.9bn increased by $55m or 6%, mainly in Hong Kong from higher deposit revenue as margins widened following interest rate rises, and from higher investment revenue due to increased client activity.
Adjusted operating expenses of $0.7bn were broadly stable, as higher variable pay was broadly offset by lower costs following the wind-down of our operations in Monaco.
Management view of adjusted revenue <> |
Half-year to |
|
1H18 vs 1H17 |
30 Jun 2018
$m |
30 Jun 2017
$m |
31 Dec 2017
$m |
|
$m |
% |
Investment revenue |
386 |
|
362 |
|
339 |
|
|
24 |
|
7 |
|
Lending |
200 |
|
193 |
|
202 |
|
|
7 |
|
4 |
|
Deposit |
244 |
|
194 |
|
211 |
|
|
50 |
|
26 |
|
Other |
99 |
|
125 |
|
114 |
|
|
(26 |
) |
(21 |
) |
Net operating income15 |
929 |
|
874 |
|
866 |
|
|
55 |
|
6 |
|
Adjusted RoRWA (%)16 |
2.3 |
|
1.8 |
|
1.9 |
|
|
|
|
RoTE excluding significant items and UK bank levy (%)17
|
11.2 |
|
6.5 |
|
7.1 |
|
|
|
|
For footnotes, see page 45.
Corporate Centre
Corporate Centre comprises Central Treasury, including BSM, our legacy businesses, interests in our associates and joint ventures, central stewardship costs and the UK bank levy.
Financial performance
Adjusted profit before tax of $0.6bn was $1.1bn or 63% lower, mainly reflecting a reduction in revenue.
Net negative revenue of $0.2bn, compared with revenue of $1.0bn in 1H17, reflected lower revenue in Central Treasury (down $0.7bn), and from legacy portfolios (down $0.2bn) following losses related to portfolio disposals. Other income also decreased (down $0.2bn), mainly driven by a change in allocation of liquidity costs in anticipation of a change in regulatory environment, lower revaluation gains of investment properties and the non-recurrence of a 1H17 gain on the disposal of our operations in Lebanon.
Central Treasury revenue decreased due to:
- lower BSM revenue (down $0.2bn), mainly as a result of de-risking activities undertaken during 2017 in anticipation of interest rate rises, lower reinvestment yields and lower disposal gains;
- higher adverse fair value movements ($0.2bn), relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives;
- a loss arising from adverse swap mark-to-market movements following a bond reclassification under IFRS 9 'Financial Instruments' ($0.2bn); and
- higher interest expense on our debt (up $0.1bn), driven by both higher issuances and the higher average cost of debt issued to meet regulatory requirements.
ECL releases of $0.1bn in 1H18 and prior year net LICs releases were both primarily related to our legacy credit portfolio.
Adjusted operating expenses of $0.7bn rose by $0.1bn or 9% due to a higher UK bank levy and higher local taxes and regulatory costs.
Adjusted income from associates rose by $0.1bn or 7%.
Management view of adjusted revenue <> |
Half-year to |
|
1H18 vs 1H17 |
30 Jun 2018
$m |
30 Jun 2017
$m |
31 Dec 2017
$m |
|
$m |
% |
Central Treasury21 |
78 |
|
776 |
|
556 |
|
|
(698 |
) |
(90 |
) |
Legacy portfolios |
(88 |
) |
136 |
|
(127 |
) |
|
(224 |
) |
>(100) |
- US run-off portfolio |
20 |
|
75 |
|
(36 |
) |
|
(55 |
) |
(73 |
) |
- legacy credit |
(108 |
) |
61 |
|
(91 |
) |
|
(169 |
) |
>(100) |
Other22 |
(153 |
) |
74 |
|
(106 |
) |
|
(227 |
) |
>(100) |
Net operating income15 |
(163 |
) |
986 |
|
323 |
|
|
(1,149 |
) |
>(100) |
For footnotes, see page 45.
Risk overview
We actively manage risk to protect and enable the business.
Managing risk
HSBC has maintained a conservative and consistent approach to risk throughout its history, helping to ensure we protect customers' funds, lend responsibly and support economies. By carefully aligning our risk appetite to our strategy, we aim to deliver sustainable long-term shareholder returns.
All employees are responsible for the management of risk, with the ultimate accountability residing with the Board. We have a strong risk culture, which is embedded through clear and consistent communication and appropriate training for all employees. A comprehensive risk management framework is applied throughout the Group, with governance and corresponding risk management tools. This framework is underpinned by our risk culture and reinforced by the HSBC Values.
Our Global Risk function oversees the framework and is led by the Group Chief Risk Officer, an executive Director. It is independent from the global businesses, including our sales and trading functions, to provide challenge, appropriate oversight and balance in risk/reward decisions.
HSBC's risk appetite defines our desired forward-looking risk profile, and informs the strategic and financial planning process. It is articulated in our risk appetite statement, which is approved by the Board. Key elements include:
- risks that we accept as part of doing business, such as credit risk and market risk;
- risks that we incur as part of doing business, such as operational risk, which are actively managed to remain below an acceptable tolerance; and
- risks for which we have zero tolerance, such as knowingly engaging in activities where foreseeable reputational risk has not been considered.
We operate a comprehensive stress testing programme to help ensure the strength and resilience of HSBC, taking part in regulators' as well as our own stress tests. In 2017, the results for HSBC as published by the Bank of England ('BoE') showed that our capital ratios, after taking account of CRD IV restrictions and strategic management actions, exceeded the BoE's requirements. This outcome reflected our strong capital position, conservative risk appetite, diversified geographical and business mix, and strategic actions undertaken.
Internal stress tests are an important element in our risk management and capital management frameworks. They include potential adverse macroeconomic, geopolitical and operational risk events, and other potential events that are specific to HSBC. The selection of scenarios reflects our top and emerging risks identification process and our risk appetite. Stress testing analysis helps management understand the nature and extent of vulnerabilities to which the bank is exposed.
Our risk management framework, and risks associated with our banking and insurance manufacturing operations, are described from pages 66 to 81 of the Annual Report and Accounts 2017.
Top and emerging risks
Our top and emerging risks framework helps enable us to identify forward-looking risks so that we may take action to either prevent them materialising or limit their effect.
Top risks are those that may have a material impact on the financial results, reputation or business model of the Group in the year ahead. Emerging risks are those that have largely unknown components and may form beyond a one-year horizon. If any of these risks were to occur, they could have a material effect on HSBC.
During 1H18, we made three changes to our top and emerging risks framework.
The thematic issue 'Impact of organisational change and regulatory demands on employees' was renamed 'Risks associated with workforce capability, capacity and environmental factors with potential impact on growth' to better reflect the challenges facing the Group and summarise the broader focus on strategic growth capability.
The theme 'Libor replacement' has been added, as the expected replacement or changes to key interbank offered rates such as Libor with alternative benchmark rates introduces uncertainty to HSBC, its clients and the financial services industry. Discontinuation of, or changes to, benchmark rates may require amendments to agreements that refer to current benchmarked rates made by HSBC, our clients and other market participants, as well as to our systems and processes.
'Execution risk' was removed, following the successful completion of a number of high-priority programmes during the period. The Group Change Committee retains close oversight of progress on the highest priority programmes, ensuring we achieve consistent delivery across critical initiatives.
Our top and emerging risks are also summarised and discussed in more detail on pages 63 to 66 of the Annual Report and Accounts 2017.
Our approach to identifying and monitoring top and emerging risks is described on page 69 of the Annual Report and Accounts 2017.
|
Risk |
Trend |
Mitigants |
|
Externally driven |
|
|
|
Economic outlook and capital flows |
^ |
We actively monitor our wholesale credit and trading portfolios, including undertaking stress tests, to identify sectors and clients that may come under stress due to: escalating tariffs and other trade restrictions; an economic slowdown in the eurozone and mainland China; and adverse outcomes of negotiations concerning the UK's exit from the EU. |
|
Geopolitical risk |
^ |
We continually assess the impact of geopolitical events on our businesses and exposures, and take steps to mitigate them, where required, to help ensure we remain within our risk appetite. We have also strengthened physical security at our premises where the risk of terrorism is heightened. |
|
The credit cycle |
> |
We continue to undertake detailed reviews of our portfolios and are assessing proactively customers and sectors likely to come under stress as a result of geopolitical or macroeconomic events, reducing limits where appropriate. |
|
Cyber threat and unauthorised access to systems |
^ |
We continue to strengthen our cyber control framework and implement initiatives to improve our resilience and cybersecurity capabilities, including threat detection and analysis, access control, payment systems controls, data protection and backup and recovery. |
|
Regulatory, technological and sustainability developments including conduct, with adverse impact on business model and profitability |
> |
We engage proactively with regulators wherever possible to help ensure new regulatory requirements are effectively implemented, and work with them in relation to their investigations into historical activities. We also engage with non-governmental organisations to help ensure our policies address environmental concerns. |
|
Financial crime risk environment |
> |
We are on track to integrate the majority of the Global Standards programme financial crime risk core capabilities into our day-to-day operations by the end of 2018, and expect to complete the closure of the programme infrastructure in early 2019. We will continue to take further steps to refine and strengthen our defences against financial crime by applying advanced analytics and artificial intelligence. |
|
Libor replacement |
^ |
We are evaluating the impact on HSBC's products, services and processes as the industry accord evolves, with the intention of minimising disruption through appropriate mitigating actions. |
|
Internally driven |
|
|
IT systems infrastructure and resilience |
> |
We continue to monitor and improve service resilience across our technology infrastructure, enhancing our problem diagnosis/resolution and change execution capabilities, reducing service disruption to our customers. |
* |
Risks associated with workforce capability, capacity and environmental factors with potential impact on growth |
> |
We continue to monitor workforce capability and capacity, particularly in our strategically relevant areas, and other conduct and cultural factors that may affect our business. Understanding our capability needs for growth will be an area of focus as well as improving employee engagement and our approach to leadership succession planning. |
|
Risks arising from the receipt of services from third parties |
> |
We have strengthened essential governance processes and relevant policies relating to how we identify, assess, mitigate and manage risks across the range of third parties with which we do business. This includes control monitoring and assurance throughout the third-party lifecycle. |
|
Enhanced model risk management expectations |
^ |
We have strengthened our model risk management framework by establishing an independent second line of defence Model Risk Management sub-function, and we continue to enhance our existing policy and standards in order to address evolving regulatory, external and internal requirements. |
|
Data management |
^ |
We continue to improve our insights, consistency of data aggregation, reporting and decisions through ongoing enhancement of our data governance, data quality, data privacy and architecture framework. |
^ Risk heightened during 2018
> Risk remained at the same level as 2017
* Thematic risk renamed during 1H18
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END
IR PLMATMBMTBIP
