TIDM57HB
RNS Number : 5830S
Hongkong & Shanghai Banking Corp Ld
10 March 2023
Consolidated Financial Statements
Consolidated income statement
for the year ended 31 December
2022 2021
Notes HK$m HK$m
------------------------------------------------------- ----- ------------------------- --------------------------
Net interest income 2a 126,852 98,113
------------------------------------------------------- ----- ------------------------- --------------------------
- interest income 180,097 121,382
------------------------------------------------------- -----
- interest expense (53,245) (23,269)
------------------------------------------------------- ----- -------------------------
Net fee income 2b 36,600 45,296
------------------------------------------------------- ----- ------------------------- --------------------------
- fee income 50,622 57,819
------------------------------------------------------- -----
- fee expense (14,022) (12,523)
------------------------------------------------------- ----- -------------------------
Net income from financial instruments held for trading
or managed on a fair value basis 2c 41,674 28,359
------------------------------------------------------- ----- ------------------------- --------------------------
Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss 2c (13,194) 18,180
------------------------------------------------------- ----- ------------------------- --------------------------
Changes in fair value of designated debts issued and
related derivatives 2c (703) (639)
------------------------------------------------------- ----- ------------------------- --------------------------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit
or loss 2c 34 (25)
------------------------------------------------------- ----- ------------------------- --------------------------
Gains less losses from financial investments 47 1,667
------------------------------------------------------- ----- ------------------------- --------------------------
Net insurance premium income 3 80,415 61,722
------------------------------------------------------- ----- ------------------------- --------------------------
Other operating income 2d 3,781 2,033
------------------------------------------------------- ----- ------------------------- --------------------------
Total operating income 275,506 254,706
------------------------------------------------------- ----- ------------------------- --------------------------
Net insurance claims and benefits paid and movement
in liabilities to policyholders 3 (69,814) (76,048)
------------------------------------------------------- ----- ------------------------- --------------------------
Net operating income before change in expected credit
losses and other credit impairment charges 205,692 178,658
------------------------------------------------------- ----- ------------------------- --------------------------
Change in expected credit losses and other credit
impairment charges 2e (16,365) (6,539)
------------------------------------------------------- ----- ------------------------- --------------------------
Net operating income 189,327 172,119
------------------------------------------------------- ----- ------------------------- --------------------------
Employee compensation and benefits 4 (40,662) (39,261)
------------------------------------------------------- ----- ------------------------- --------------------------
General and administrative expenses 2f (54,549) (52,327)
------------------------------------------------------- ----- ------------------------- --------------------------
Depreciation and impairment of property, plant and
equipment 2g (9,157) (8,891)
------------------------------------------------------- ----- ------------------------- --------------------------
Amortisation and impairment of intangible assets (6,140) (4,397)
------------------------------------------------------- ----- ------------------------- --------------------------
Total operating expenses (110,508) (104,876)
------------------------------------------------------- ----- ------------------------- --------------------------
Operating profit 78,819 67,243
------------------------------------------------------- ----- ------------------------- --------------------------
Share of profit in associates and joint ventures 18,792 19,320
------------------------------------------------------- ----- ------------------------- --------------------------
Profit before tax 97,611 86,563
------------------------------------------------------- ----- ------------------------- --------------------------
Tax expense 5 (15,507) (14,015)
------------------------------------------------------- ----- ------------------------- --------------------------
Profit for the year 82,104 72,548
------------------------------------------------------- ----- ------------------------- --------------------------
Attributable to:
------------------------------------------------------- ----- ------------------------- --------------------------
* ordinary shareholders of the parent company 75,506 64,633
------------------------------------------------------- ----- ------------------------- --------------------------
* other equity holders 2,739 2,715
------------------------------------------------------- ----- ------------------------- --------------------------
* non-controlling interests 3,859 5,200
------------------------------------------------------- ----- ------------------------- --------------------------
Profit for the year 82,104 72,548
------------------------------------------------------- ----- ------------------------- --------------------------
Consolidated statement of comprehensive income
for the year ended 31 December
2022 2021
HK$m HK$m
----------------------------------------------------------- --------------------------- ----------------------------
Profit for the year 82,104 72,548
----------------------------------------------------------- --------------------------- ----------------------------
Other comprehensive income/(expense)
----------------------------------------------------------- --------------------------- ----------------------------
Items that will be reclassified subsequently to profit
or loss when specific conditions are met:
----------------------------------------------------------- --------------------------- ----------------------------
Debt instruments at fair value through other comprehensive
income (13,675) (4,009)
----------------------------------------------------------- --------------------------- ----------------------------
- fair value losses (17,077) (3,907)
-----------------------------------------------------------
- fair value gains transferred to the income statement (139) (1,276)
-----------------------------------------------------------
- expected credit (recoveries)/losses recognised in the
income statement 342 (17)
-----------------------------------------------------------
- income taxes 3,199 1,191
----------------------------------------------------------- ---------------------------
Cash flow hedges (1,965) (700)
----------------------------------------------------------- --------------------------- ----------------------------
- fair value gains 5,851 7,038
-----------------------------------------------------------
- fair value gains reclassified to the income statement (8,228) (7,850)
-----------------------------------------------------------
- income taxes 412 112
----------------------------------------------------------- ---------------------------
Share of other comprehensive income/(expense) of associates
and joint ventures (1,964) 596
----------------------------------------------------------- --------------------------- ----------------------------
Exchange differences (32,051) 3,973
----------------------------------------------------------- --------------------------- ----------------------------
Items that will not be reclassified subsequently to profit
or loss:
----------------------------------------------------------- --------------------------- ----------------------------
Property revaluation 3,863 4,771
----------------------------------------------------------- --------------------------- ----------------------------
- fair value gains 4,683 5,643
-----------------------------------------------------------
- income taxes (820) (872)
----------------------------------------------------------- ---------------------------
Equity instruments designated at fair value through other
comprehensive income 865 (3,480)
----------------------------------------------------------- --------------------------- ----------------------------
- fair value gains/(losses) 868 (3,478)
-----------------------------------------------------------
- income taxes (3) (2)
----------------------------------------------------------- ---------------------------
Changes in fair value of financial liabilities designated
at fair value upon initial recognition arising from
changes
in own credit risk 4,588 522
----------------------------------------------------------- --------------------------- ----------------------------
- before income taxes 5,461 631
-----------------------------------------------------------
- income taxes (873) (109)
----------------------------------------------------------- ---------------------------
Remeasurement of defined benefit asset/liability 185 724
----------------------------------------------------------- --------------------------- ----------------------------
- before income taxes 232 885
-----------------------------------------------------------
- income taxes (47) (161)
----------------------------------------------------------- ---------------------------
Other comprehensive income/(expense) for the year, net
of tax (40,154) 2,397
----------------------------------------------------------- --------------------------- ----------------------------
Total comprehensive income for the year 41,950 74,945
----------------------------------------------------------- --------------------------- ----------------------------
Attributable to:
----------------------------------------------------------- --------------------------- ----------------------------
- ordinary shareholders of the parent company 36,360 67,148
----------------------------------------------------------- --------------------------- ----------------------------
- other equity holders 2,739 2,715
----------------------------------------------------------- --------------------------- ----------------------------
- non-controlling interests 2,851 5,082
----------------------------------------------------------- --------------------------- ----------------------------
Total comprehensive income for the year 41,950 74,945
----------------------------------------------------------- --------------------------- ----------------------------
Consolidated balance sheet
at 31 December
2022 2021
Notes HK$m HK$m
------------------------------------------------------ ----- --------------------- -----------------------
Assets
------------------------------------------------------ ----- --------------------- -----------------------
Cash and balances at central banks 232,740 276,857
------------------------------------------------------ ----- --------------------- -----------------------
Items in the course of collection from other banks 28,557 21,632
------------------------------------------------------ ----- --------------------- -----------------------
Hong Kong Government certificates of indebtedness 341,354 332,044
------------------------------------------------------ ----- --------------------- -----------------------
Trading assets 7 699,805 777,450
------------------------------------------------------ ----- --------------------- -----------------------
Derivatives 8 502,771 365,167
------------------------------------------------------ ----- --------------------- -----------------------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 9 226,451 202,399
------------------------------------------------------ ----- --------------------- -----------------------
Reverse repurchase agreements - non-trading 927,976 803,775
------------------------------------------------------ ----- --------------------- -----------------------
Loans and advances to banks 519,024 432,247
------------------------------------------------------ ----- --------------------- -----------------------
Loans and advances to customers 10 3,705,149 3,840,939
------------------------------------------------------ ----- --------------------- -----------------------
Financial investments 11 2,221,361 2,051,575
------------------------------------------------------ ----- --------------------- -----------------------
Amounts due from Group companies 32 140,546 112,719
------------------------------------------------------ ----- --------------------- -----------------------
Interests in associates and joint ventures 14 185,898 188,485
------------------------------------------------------ ----- --------------------- -----------------------
Goodwill and intangible assets 15 102,419 95,181
------------------------------------------------------ ----- --------------------- -----------------------
Property, plant and equipment 16 130,926 129,827
------------------------------------------------------ ----- --------------------- -----------------------
Deferred tax assets 5 3,856 3,353
------------------------------------------------------ ----- --------------------- -----------------------
Prepayments, accrued income and other assets 17 355,319 269,743
------------------------------------------------------ ----- --------------------- -----------------------
Total assets 10,324,152 9,903,393
------------------------------------------------------ ----- --------------------- -----------------------
Liabilities
------------------------------------------------------ ----- --------------------- -----------------------
Hong Kong currency notes in circulation 341,354 332,044
------------------------------------------------------ ----- --------------------- -----------------------
Items in the course of transmission to other banks 33,073 25,701
------------------------------------------------------ ----- --------------------- -----------------------
Repurchase agreements - non-trading 351,093 255,374
------------------------------------------------------ ----- --------------------- -----------------------
Deposits by banks 198,908 280,310
------------------------------------------------------ ----- --------------------- -----------------------
Customer accounts 18 6,113,709 6,177,182
------------------------------------------------------ ----- --------------------- -----------------------
Trading liabilities 19 142,453 92,723
------------------------------------------------------ ----- --------------------- -----------------------
Derivatives 8 551,745 355,791
------------------------------------------------------ ----- --------------------- -----------------------
Financial liabilities designated at fair value 20 167,743 138,965
------------------------------------------------------ ----- --------------------- -----------------------
Debt securities in issue 21 100,909 67,364
------------------------------------------------------ ----- --------------------- -----------------------
Retirement benefit liabilities 4 1,655 1,890
------------------------------------------------------ ----- --------------------- -----------------------
Amounts due to Group companies 32 398,705 356,233
------------------------------------------------------ ----- --------------------- -----------------------
Accruals and deferred income, other liabilities and
provisions 22 238,726 219,206
------------------------------------------------------ ----- --------------------- -----------------------
Liabilities under insurance contracts 3 700,758 638,145
------------------------------------------------------ ----- --------------------- -----------------------
Current tax liabilities 6,002 2,378
------------------------------------------------------ ----- --------------------- -----------------------
Deferred tax liabilities 5 32,937 32,522
------------------------------------------------------ ----- --------------------- -----------------------
Subordinated liabilities 23 3,119 4,054
------------------------------------------------------ ----- --------------------- -----------------------
Total liabilities 9,382,889 8,979,882
------------------------------------------------------ ----- --------------------- -----------------------
Equity
------------------------------------------------------ ----- --------------------- -----------------------
Share capital 24 180,181 172,335
------------------------------------------------------ ----- --------------------- -----------------------
Other equity instruments 25 52,386 44,615
------------------------------------------------------ ----- --------------------- -----------------------
Other reserves 109,235 151,804
------------------------------------------------------ ----- --------------------- -----------------------
Retained earnings 533,518 488,055
------------------------------------------------------ ----- --------------------- -----------------------
Total shareholders' equity 875,320 856,809
------------------------------------------------------ ----- --------------------- -----------------------
Non-controlling interests 65,943 66,702
------------------------------------------------------ ----- --------------------- -----------------------
Total equity 941,263 923,511
------------------------------------------------------ ----- --------------------- -----------------------
Total liabilities and equity 10,324,152 9,903,393
------------------------------------------------------ ----- --------------------- -----------------------
Consolidated statement of cash flows
for the year ended 31 December
2022 2021
HK$m HK$m
----------------------------------------------------------- --------------------------- ----------------------------
Profit before tax 97,611 86,563
----------------------------------------------------------- --------------------------- ----------------------------
Adjustments for non-cash items:
----------------------------------------------------------- --------------------------- ----------------------------
Depreciation and amortisation 15,297 13,288
----------------------------------------------------------- --------------------------- ----------------------------
Net (gain)/loss from investing activities 128 (1,890)
----------------------------------------------------------- --------------------------- ----------------------------
Share of profits in associates and joint ventures (18,792) (19,320)
----------------------------------------------------------- --------------------------- ----------------------------
Gain on disposal of subsidiaries, businesses, associates
and joint ventures (4) (4)
----------------------------------------------------------- --------------------------- ----------------------------
Gain on acquisition of subsidiary (665) -
----------------------------------------------------------- --------------------------- ----------------------------
Change in expected credit losses gross of recoveries and
other credit impairment charges 17,245 7,549
----------------------------------------------------------- --------------------------- ----------------------------
Provisions 592 607
----------------------------------------------------------- --------------------------- ----------------------------
Share-based payment expense 843 913
----------------------------------------------------------- --------------------------- ----------------------------
Other non-cash items included in profit before tax (1,507) 5,416
----------------------------------------------------------- --------------------------- ----------------------------
Elimination of exchange differences 36,982 8,024
----------------------------------------------------------- --------------------------- ----------------------------
Changes in operating assets and liabilities
----------------------------------------------------------- --------------------------- ----------------------------
Change in net trading securities and derivatives 185,431 (159,767)
----------------------------------------------------------- --------------------------- ----------------------------
Change in loans and advances to banks and customers 77,973 (172,484)
----------------------------------------------------------- --------------------------- ----------------------------
Change in reverse repurchase agreements - non-trading (166,542) (174,643)
----------------------------------------------------------- --------------------------- ----------------------------
Change in financial assets designated and otherwise
mandatorily
measured at fair value through profit or loss 4,728 (23,439)
----------------------------------------------------------- --------------------------- ----------------------------
Change in other assets (91,989) 43,706
----------------------------------------------------------- --------------------------- ----------------------------
Change in deposits by banks and customer accounts (144,875) 297,468
----------------------------------------------------------- --------------------------- ----------------------------
Change in repurchase agreements - non-trading 95,719 119,217
----------------------------------------------------------- --------------------------- ----------------------------
Change in debt securities in issue 33,545 (12,055)
----------------------------------------------------------- --------------------------- ----------------------------
Change in financial liabilities designated at fair value 26,028 (28,048)
----------------------------------------------------------- --------------------------- ----------------------------
Change in other liabilities 101,882 129,710
----------------------------------------------------------- --------------------------- ----------------------------
Dividends received from associates 6,003 5,525
----------------------------------------------------------- --------------------------- ----------------------------
Contributions paid to defined benefit plans (345) (356)
----------------------------------------------------------- --------------------------- ----------------------------
Tax paid (11,463) (12,648)
----------------------------------------------------------- --------------------------- ----------------------------
Net cash from operating activities 263,825 113,332
----------------------------------------------------------- --------------------------- ----------------------------
Purchase of financial investments (1,256,919) (1,233,472)
----------------------------------------------------------- --------------------------- ----------------------------
Proceeds from the sale and maturity of financial
investments 1,093,359 1,193,780
----------------------------------------------------------- --------------------------- ----------------------------
Purchase of property, plant and equipment (2,802) (2,718)
----------------------------------------------------------- --------------------------- ----------------------------
Proceeds from sale of property, plant and equipment and
assets held for sale 73 96
----------------------------------------------------------- --------------------------- ----------------------------
Proceeds from disposal of customer loan portfolios 1,449 2,267
----------------------------------------------------------- --------------------------- ----------------------------
Net investment in intangible assets (11,771) (10,835)
----------------------------------------------------------- --------------------------- ----------------------------
Net cash outflow on purchase of subsidiaries (4,166) (13)
----------------------------------------------------------- --------------------------- ----------------------------
Net cash from investing activities (180,777) (50,895)
----------------------------------------------------------- --------------------------- ----------------------------
Issue of ordinary share capital and other equity 15,617 -
instruments
----------------------------------------------------------- --------------------------- ----------------------------
Purchase of non-controlling interest (1,548) -
----------------------------------------------------------- --------------------------- ----------------------------
Subordinated loan capital issued(1) 81,014 57,764
----------------------------------------------------------- --------------------------- ----------------------------
Subordinated loan capital repaid(1) (22,367) (24,102)
----------------------------------------------------------- --------------------------- ----------------------------
Dividends paid to shareholders of the parent company and
non-controlling interests (37,666) (63,523)
----------------------------------------------------------- --------------------------- ----------------------------
Net cash from financing activities 35,050 (29,861)
----------------------------------------------------------- --------------------------- ----------------------------
Net increase in cash and cash equivalents 118,098 32,576
----------------------------------------------------------- --------------------------- ----------------------------
Cash and cash equivalents at 1 Jan 1,055,084 1,047,807
----------------------------------------------------------- --------------------------- ----------------------------
Exchange differences in respect of cash and cash
equivalents (51,487) (25,299)
----------------------------------------------------------- --------------------------- ----------------------------
Cash and cash equivalents at 31 Dec(2) 1,121,695 1,055,084
----------------------------------------------------------- --------------------------- ----------------------------
Cash and cash equivalents comprise
----------------------------------------------------------- --------------------------- ----------------------------
- cash and balances at central banks 232,740 276,857
----------------------------------------------------------- --------------------------- ----------------------------
- items in the course of collection from other banks 28,557 21,632
----------------------------------------------------------- --------------------------- ----------------------------
- loans and advances to banks of one month or less 368,946 326,691
----------------------------------------------------------- --------------------------- ----------------------------
- net settlement accounts and cash collateral 58,473 34,580
----------------------------------------------------------- --------------------------- ----------------------------
- reverse repurchase agreements with banks of one month
or less 286,100 306,241
----------------------------------------------------------- --------------------------- ----------------------------
- treasury bills, other bills and certificates of deposit
less than three months 179,952 114,784
----------------------------------------------------------- --------------------------- ----------------------------
- less: items in the course of transmission to other banks (33,073) (25,701)
----------------------------------------------------------- --------------------------- ----------------------------
Cash and cash equivalents at 31 Dec(2) 1,121,695 1,055,084
----------------------------------------------------------- --------------------------- ----------------------------
Interest received was HK$181,301m (2021: HK$133,964m), interest
paid was HK$50,873m (2021: HK$26,553m) and dividends received were
HK$6,971m (2021: HK$5,592m).
1 Changes in subordinated loan capital (including those issued
to group companies) during the year included amounts from issuance
and repayments as presented above, and non-cash changes from
foreign exchange loss of HK$1,991m in 2022 (2021: exchange loss of
HK$494m) and fair value loss after hedging of HK$25,579m in 2022
(2021: HK$7,768m loss). These balances are presented under 'Amounts
due to Group companies' in the consolidated balance sheet.
2 At 31 December 2022, HK$161,252m (2021: HK$128,756m) was not
available for use by the group, of which HK$65,026m (2021:
HK$67,340m) related to mandatory deposits at Central banks.
Consolidated statement of changes in equity
for the year ended 31 December
Other reserves
--------------------------------------------------------------------------------------
Other Financial Cash Total
equity Property assets flow Foreign share- Non-
Share instru- Retained revaluation at FVOCI hedge exchange holders' controlling Total
capital(1) ments earnings reserve reserve reserve reserve Other(3) equity interests equity
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
At 1 Jan 2022 172,335 44,615 488,055 64,990 3,869 153 (7,130) 89,922 856,809 66,702 923,511
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Profit for the year - - 78,245 - - - - - 78,245 3,859 82,104
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Other comprehensive
income/(expense)
(net of tax) - - 4,772 3,646 (14,774) (1,639) (31,351) 200 (39,146) (1,008) (40,154)
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
* debt instruments at fair value through other
comprehensive income - - - - (13,364) - - - (13,364) (311) (13,675)
----------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - - 745 - - - 745 120 865
----------------------------------------------------------
* cash flow hedges - - - - - (1,639) - - (1,639) (326) (1,965)
----------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - 4,590 - - - - - 4,590 (2) 4,588
----------------------------------------------------------
* property revaluation - - - 3,646 - - - - 3,646 217 3,863
----------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 191 - - - - - 191 (6) 185
----------------------------------------------------------
* share of other comprehensive income/(expense) of
associates and joint ventures - - (9) - (2,155) - - 200 (1,964) - (1,964)
----------------------------------------------------------
* exchange differences - - - - - - (31,351) - (31,351) (700) (32,051)
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- --------------------
Total comprehensive
income/(expense)
for the year - - 83,017 3,646 (14,774) (1,639) (31,351) 200 39,099 2,851 41,950
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Shares issued(1) 7,846 - - - - - - - 7,846 - 7,846
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Other equity instruments
issued(2) - 7,771 - - - - - - 7,771 - 7,771
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Dividends to shareholders(4) - - (34,821) - - - - - (34,821) (2,845) (37,666)
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Movement in respect
of share-based payment
arrangements - - 135 - - - - (137) (2) 13 11
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Transfers and other
movements(5) - - (2,868) (3,488) 43 (1) - 4,932 (1,382) (778) (2,160)
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
At 31 Dec 2022 180,181 52,386 533,518 65,148 (10,862) (1,487) (38,481) 94,917 875,320 65,943 941,263
---------------------------------------------------------- ---------------- -------------- ----------------- -------------------- ---------------- -------------- ---------------- ------------ ----------------- -------------------- ---------------
Consolidated statement of changes in equity (continued)
for the year ended 31 December
Other reserves
----------------------------------------------------------------------------------------
Financial Cash Total
Other Property assets flow Foreign share- Non-
Share equity Retained revaluation at FVOCI hedge exchange holders' controlling Total
capital(1) instruments earnings reserve reserve reserve reserve Other(3) equity interests equity
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
At 1 Jan 2021 172,335 44,615 478,903 63,793 9,883 772 (10,688) 85,740 845,353 66,178 911,531
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
Profit for the
year - - 67,348 - - - - - 67,348 5,200 72,548
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
Other comprehensive
income/(expense)
(net of tax) - - 1,160 4,359 (5,992) (619) 3,558 49 2,515 (118) 2,397
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
* debt instruments at fair value through other
comprehensive income - - - - (3,775) - - - (3,775) (234) (4,009)
------------------------------------------------------------
* equity instruments designated at fair value through
other comprehensive income - - - - (2,737) - - - (2,737) (743) (3,480)
------------------------------------------------------------
* cash flow hedges - - - - - (619) - - (619) (81) (700)
------------------------------------------------------------
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - 521 - - - - - 521 1 522
------------------------------------------------------------
* property revaluation - - - 4,359 - - - - 4,359 412 4,771
------------------------------------------------------------
* remeasurement of defined benefit asset/liability - - 612 - - - - - 612 112 724
------------------------------------------------------------
* share of other comprehensive income of associates and
joint ventures - - 27 - 520 - - 49 596 - 596
------------------------------------------------------------
* exchange differences - - - - - - 3,558 - 3,558 415 3,973
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- ---------------------
Total comprehensive
income/(expense)
for the year - - 68,508 4,359 (5,992) (619) 3,558 49 69,863 5,082 74,945
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
Dividends to shareholders(4) - - (59,105) - - - - - (59,105) (4,418) (63,523)
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
Movement in respect
of share-based
payment arrangements - - 131 - - - - (173) (42) (2) (44)
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
Transfers and
other movements(5) - - (382) (3,162) (22) - - 4,306 740 (138) 602
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
At 31 Dec 2021 172,335 44,615 488,055 64,990 3,869 153 (7,130) 89,922 856,809 66,702 923,511
------------------------------------------------------------ ---------------- ------------------- ---------------- ------------------- -------------------- ------------ ---------------- ------------- ---------------- --------------------- ----------------
1 Ordinary share capital includes preference shares which have
been redeemed or bought back via payments out of distributable
profits in previous years. During 2022, 3,138.4m new ordinary
shares were issued at an issue price of HK$2.5 each.
2 During 2022, an additional tier 1 capital instrument was
issued amounted to US$1,000m on which there were US$10m issue
costs.
3 The other reserves mainly comprise share of associates' other
reserves, purchase premium arising from transfer of business from
fellow subsidiaries, property revaluation reserve relating to
transfer of properties to a fellow subsidiary and the share-based
payment reserve. The share-based payment reserve is used to record
the amount relating to share awards and options granted to
employees of the group directly by HSBC Holdings plc.
4 Including distributions paid on perpetual subordinated loans
classified as equity under HKFRS.
5 The movements include transfers from retained earnings to
other reserves in associates according to local regulatory
requirements, and from the property revaluation reserve to retained
earnings in relation to depreciation of revalued properties.
5
Notes on the Consolidated Financial Statements
1 Basis of preparation and significant accounting policies
--------------------------------------------------------
1.1 Basis of preparation
(a) Compliance with Hong Kong Financial Reporting Standards
The consolidated financial statements of The Hongkong and
Shanghai Banking Corporation Limited ('the Bank') and its
subsidiaries (together 'the group') have been prepared in
accordance with Hong Kong Financial Reporting Standards ('HKFRSs')
as issued by the Hong Kong Institute of Certified Public
Accountants ('HKICPA') and accounting principles generally accepted
in Hong Kong. These consolidated financial statements also comply
with the requirements of the Hong Kong Companies Ordinance (Cap.
622) which are applicable to the preparation of the financial
statements.
Standards adopted during the year ended 31 December 2022
There were no new accounting standards or interpretations that
had a significant effect on the group in 2022. Accounting policies
have been consistently applied to all the years presented, unless
otherwise stated.
(b) Future accounting developments
Minor amendments to HKFRSs
The HKICPA has published a number of minor amendments to HKFRSs
that are effective from 1 January 2023 and 1 January 2024. The
group expects they will have an insignificant effect, when adopted,
on the Consolidated Financial Statements.
New HKFRSs
HKFRS 17 'Insurance Contracts'
HKFRS 17 'Insurance Contracts' is effective for annual reporting
periods beginning on or after 1 January 2023 and is applied
retrospectively.
HKFRS 17 sets out the requirements that the group will apply in
accounting for insurance contracts it issues, reinsurance contracts
it holds, and investment contracts with discretionary participation
features.
The group is at an advanced stage in the implementation of HKFRS
17, having put in place accounting policies, data and models, and
made progress with preparing 2022 comparative data. Below are set
out our expectations of the impact of HKFRS 17 compared with our
current accounting policy for insurance contracts, which is set out
in policy 1.2(j) on page 93.
Under HKFRS 17, no present value of in-force business ('PVIF')
asset is recognised. Instead, the measurement of the insurance
contracts liability is based on groups of insurance contracts and
will include fulfilment cash flows, as well as the contractual
service margin ('CSM'), which represents the unearned profit.
To identify groups of insurance contracts, individual contracts
subject to similar dominant risk and managed together are
identified as a portfolio of insurance contracts. Each portfolio is
further separated by profitability group and issue date into
periodic cohorts.
The fulfilment cash flows comprise:
-- the best estimates of future cash flows, including amounts
expected to be collected from premiums and payouts for claims,
benefits and expenses, which are projected using assumptions based
on demographic and operating experience;
-- an adjustment for the time value of money and financial risks
associated with the future cash flows; and
-- an adjustment for non-financial risk that reflects the
uncertainty about the amount and timing of future cash flows.
In contrast to the group's HKFRS 4 accounting where profits are
recognised upfront, the CSM will be systematically recognised in
revenue, as services are provided over the expected coverage period
of the group of contracts without any change to the overall profit
of the contracts. Losses resulting from the recognition of onerous
contracts are recognised in the income statement immediately.
The CSM is adjusted depending on the measurement model of the
group of insurance contracts. While the general measurement model
('GMM') is the default measurement model under HKFRS 17, the Group
expects that the majority of its contracts will be accounted for
under the variable fee approach ('VFA'), which is mandatory to
apply for insurance contracts with direct participation features
upon meeting the eligibility criteria.
HKFRS 17 requires entities to apply HKFRS 17 retrospectively as
if HKFRS 17 had always been applied, using the full retrospective
approach ('FRA') unless it is impracticable. When FRA is
impracticable such as when there is a lack of sufficient and
reliable data, an entity has an accounting policy choice to use
either the modified retrospective approach ('MRA') or the fair
value approach ('FVA'). The group will apply the FRA for new
business from 2018 at the earliest, subject to practicability, and
FVA for the majority of contracts for which FRA is impracticable.
Where the FVA is used, the measurement takes into account the cost
of capital that a market participant within the jurisdiction would
be expected to hold based on the asset and liability positions on
the transition date.
The group will make use of the option to re-designate eligible
financial assets held to support insurance liabilities currently
measured at amortised cost, as financial assets measured at fair
value through profit or loss. Following re-designation, interest
income earned on these financial assets will no longer be shown in
'net interest income', and will instead form part of 'net
income/(expense) from assets and liabilities of insurance
businesses, including related derivatives, measured at fair value
through profit or loss' in accordance with the group's income and
expense policy set out in Note 1.2(b) on page 87.
The group will also make use of the risk mitigation option for a
number of economic offsets between the VFA contracts and
reinsurance contracts held that meet the requirements.
Impact of HKFRS 17
Changes to equity on transition are driven by the elimination of
the PVIF asset, the re-designation of certain eligible financial
assets in the scope of HKFRS 9, the remeasurement of insurance
liabilities and assets under HKFRS 17, and the recognition of the
CSM.
HKFRS 17 requires the use of current market values for the
measurement of insurance liabilities. The shareholder's share of
the investment experience and assumption changes will be absorbed
by the CSM and released over time to profit or loss under VFA. For
contracts measured under GMM, the shareholder's share of the
investment volatility is recorded in profit or loss as it arises.
Under HKFRS 17, operating expenses will be lower as directly
attributable costs will be incorporated in the CSM and recognised
in the insurance service result.
While the profit over the life of an individual contract will be
unchanged, its emergence will be later under HKFRS 17.
All of these impacts will be subject to deferred tax.
Estimates of the opening balance sheet as at 1 January 2022 have
been calculated and are presented below, showing separately the
impact on the total assets, liabilities and equity of our insurance
manufacturing operations and group equity. These estimates are
based on accounting policies, assumptions, judgements and
estimation techniques that remain subject to change.
Impact of
transition to
HKFRS 17,
at 1 January Insurance manufacturing
2022 operations group
-------------------------------------------------------------------------------------------------------------- -----------------------------------
Assets Liabilities Equity Equity
HK$bn HK$bn HK$bn HK$bn
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
Balance sheet
values at 1
January
2022 under
HKFRS 4 833.2 719.5 113.7 923.5
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
Removal of PVIF* (63.8) - (63.8) (63.8)
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
Replacement of
HKFRS 4
liabilities
with HKFRS 17 (3.4) 57.8 (61.2) (64.3)
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
- Removal of
HKFRS 4
liabilities
and recording
of HKFRS 17
fulfilment
cash (3.1) (5.7) 2.6 2.7
----------------
- HKFRS 17
contractual
service margin (0.3) 63.5 (63.8) (67.0)
---------------- ----------------------------------- ------------------------------------ -----------------------------------
Remeasurement
effect of HKFRS
9
re-designations 38.1 - 38.1 38.1
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
Tax effect* 3.6 (10.5) 14.1 14.6
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
Estimated
balance sheet
values
at 1 January
2022 under
HKFRS 17 807.7 766.8 40.9 848.1
---------------- ----------------------------------- ------------------------------------ ----------------------------------- -----------------------------------
* PVIF of HK$63.8bn less deferred tax of HK$10.5bn constitute
the overall estimated reduction in intangible assets, after tax, of
HK$53.3bn on transition to HKFRS 17.
The group's accounting for insurance contracts considers a
broader set of cash flows than those arising within the insurance
manufacturing entities. This includes the effect of eliminating
intra-group fees associated with distribution of policies through
the group's banking channel and directly attributable costs
incurred by other group entities. These factors lead to an increase
to the group CSM after inclusion of distribution activities of
approximately HK$3.2bn, with a consequential reduction to group
equity of approximately HK$2.6bn after the inclusion of deferred
tax.
(c) Foreign currencies
Items included in each of the group's entities are measured
using the currency of the primary economic environment in which the
entity operates (the 'functional currency'). The group's
consolidated financial statements are presented in Hong Kong
dollars.
Transactions in foreign currencies are recorded at the rate of
exchange on the date of the transaction. Assets and liabilities
denominated in foreign currencies are translated at the rate of
exchange at the balance sheet date except non-monetary assets and
liabilities measured at historical cost which are translated using
the rate of exchange at the initial transaction date. Exchange
differences are included in other comprehensive income ('OCI') or
in the income statement depending on where the gain or loss on the
underlying item is recognised.
In the Consolidated Financial Statements, the assets,
liabilities and results of foreign operations whose functional
currency is not Hong Kong dollars are translated into the group's
presentation currency at the rate of exchange at the balance sheet
date, while their results are translated into Hong Kong dollars at
the average rates of exchange for the reporting period. Exchange
differences arising are recognised in OCI. On disposal of a foreign
operation, exchange differences previously recognised in OCI are
reclassified to the income statement.
(d) Presentation of information
Certain disclosures required by HKFRSs have been included in the
sections marked as ('Audited') in this Annual Report and Accounts
as follows:
-- Consolidated income statement and balance sheet data by
reportable segments are included in the 'Financial Review' on page
16 as specified as 'Audited'.
-- Disclosures on 'Financial instruments impacted by IBOR
reform' are included in the 'Top and Emerging Risks' section on
page 25 as specified as 'Audited'.
-- Disclosures concerning the nature and extent of risks
relating to banking and insurance activities are included in the
'Risk' section on pages 31 to 61 and pages 68 to 72 as specified as
'Audited'.
-- Capital disclosures are included in the 'Treasury Risk'
section on pages 53 to 54 as specified as 'Audited'.
In accordance with the group's policy to provide disclosures
that help stakeholders understand the group's performance,
financial position and changes to them, the information provided in
the Risk section goes beyond the minimum levels required by
accounting standards, statutory and regulatory requirements. In
addition, the group assesses good practice recommendations issued
from time to time by relevant regulators and standard setters and
will assess the applicability and relevance of such guidance,
enhancing disclosures where appropriate.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of
estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved
in the recognition or measurement of items highlighted as the
critical accounting estimates and judgements in Note 1.2 below, it
is possible that the outcomes in the next financial year could
differ from those on which management's estimates are based. This
could result in materially different estimates and judgements from
those reached by management for the purposes of the Consolidated
Financial Statements. Management's selection of the group's
accounting policies that contain critical estimates and judgements
reflects the materiality of the items to which the policies are
applied and the high degree of judgement and estimation uncertainty
involved.
Management has considered the impact of climate-related risks on
the group's financial position and performance. While the effects
of climate change are a source of uncertainty, as at 31 December
2022 we do not consider there to be a material impact on our
critical judgements and estimates from
the physical, transition and other climate-related risks in the
short to medium term. In particular management has considered the
known and observable potential impact of climate-related risks of
associated judgements and estimates in our value in use
calculations.
(f) Segmental analysis
The group's chief operating decision-maker is the Executive
Committee, which operates as a general management committee under
the direct authority of the Board. Operating segments are reported
in a manner consistent with the internal reporting provided to the
Executive Committee.
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the group's accounting policies.
Segmental income and expenses include transfers between segments
and these transfers are conducted at arm's length. Shared costs are
included in segments on the basis of the actual recharges made.
(g) Going concern
The Consolidated Financial Statements are prepared on a going
concern basis, as the Directors are satisfied that the group and
parent company have the resources to continue in business for the
foreseeable future. In making this assessment, the Directors have
considered a wide range of information relating to present and
future conditions, including future projections of profitability,
cash flows, capital requirements and capital resources. These
considerations include stressed scenarios that reflect the
uncertainty in structural changes from the Covid-19 pandemic, the
Russia-Ukraine war, disrupted supply chains globally, slower
Chinese economic activity, climate change and other top and
emerging risks, as well as from the related impacts on
profitability, capital and liquidity.
1.2 Summary of significant accounting policies
(a) Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, the group
consolidates when it holds, directly or indirectly, the necessary
voting rights to pass resolutions by the governing body. In all
other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to
variability of returns, power to direct relevant activities and
whether power is held as agent or principal.
Business combinations are accounted for using the acquisition
method. The amount of non-controlling interest is measured either
at fair value or at the non-controlling interest's proportionate
share of the acquiree's identifiable net assets. This election is
made for each business combination.
The Bank's investments in subsidiaries are stated at cost less
impairment losses.
Goodwill
Goodwill is allocated to cash-generating units ('CGU') for the
purpose of impairment testing, which is undertaken at the lowest
level at which goodwill is monitored for internal management
purposes. Impairment testing is performed at least once a year, or
whenever there is an indication of impairment, by comparing the
recoverable amount of a CGU with its carrying amount.
Interests in associates
The group classifies investments in entities over which it has
significant influence, and that are neither subsidiaries nor joint
arrangements, as associates.
Investments in associates are recognised using the equity
method. The attributable share of the results and reserves of
associates is included in the consolidated financial statements of
the group based on either financial statements made up to 31
December or amounts adjusted for any material transactions or
events occurring between the date the financial statements are
available and
31 December.
Investments in associates are assessed at each reporting date
and tested for impairment when there is an indication that the
investment may be impaired. Goodwill on acquisitions of interests
in associates is not tested separately for impairment but is
assessed as part of the carrying amount of the investment.
Critical accounting estimates and judgements
The most significant critical accounting estimates relate to the assessment
of impairment of our investment in Bank of Communications Co. Limited
('BoCom'), which involves estimations of value in use.
* The VIU calculation uses discounted cash flow
projections based on management's best estimates of
future earnings available to ordinary shareholders
prepared in accordance with HKAS 36.
* Key assumptions are used in estimating BoCom's value
in use, the sensitivity of the value in use
calculations to different assumptions and a
sensitivity analysis that shows the changes in key
assumptions that would reduce the excess of value in
use over the carrying amount (the 'headroom') to nil
are described in Note 14.
===========================================================================
(b) Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments,
excluding those classified as held for trading or designated at
fair value are recognised in 'Interest income' and 'Interest
expense' in the income statement using the effective interest
method. However, as an exception to this, interest on debt
instruments issued by the group for funding purposes that are
designated under the fair value option to reduce an accounting
mismatch and on derivatives managed in conjunction with those debt
instruments is included in interest expense.
Interest on credit impaired financial assets is recognised using
the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Non-interest income and expense
The group generates fee income from services provided at a fixed
price over time, such as account service and card fees, or when the
group delivers a specific transaction at a point in time such as
broking services and import/export services. With the exception of
certain fund management and performance fees, all other fees are
generated at a fixed price. Fund management and performance fees
can be variable depending on the size of the customer portfolio and
the group's performance as fund manager. Variable fees are
recognised when all uncertainties are resolved. Fee income is
generally earned from short term contracts with payment terms that
do not include a significant financing component.
The group acts as principal in the majority of contracts with
customers, with the exception of broking services. For brokerage
trades where the group acts as an agent in the transaction it
recognises broking income net of fees payable to other parties in
the arrangement.
The group recognises fees earned on transaction-based
arrangements at a point in time when it has fully provided the
service to the customer. Where the contract requires services to be
provided over time, income is recognised on a systematic basis over
the life of the agreement.
Where the group offers a package of services that contains
multiple non-distinct performance obligations, such as those
included in account service packages, the promised services are
treated as a single performance obligation. If a package of
services contains distinct performance obligations, such as those
including both account and insurance services, the corresponding
transaction price is allocated to each performance obligation based
on the estimated stand-alone selling prices.
Dividend income is recognised when the right to receive payment
is established. This is the ex-dividend date for listed equity
securities, and usually the date when shareholders approve the
dividend for unlisted equity securities.
Net income/(expense) from financial instruments measured at fair
value through profit or loss includes the following:
-- 'Net income from financial instruments held for trading or
managed on a fair value basis'. This comprises net trading income,
which includes all gains and losses from changes in the fair value
of financial assets and financial liabilities held for trading and
other financial instruments managed on a fair value basis, together
with the related interest income, expense and dividends, excluding
the effect of changes in the credit risk of liabilities managed on
a fair value basis. It also includes all gains and losses from
changes in the fair value of derivatives that are managed in
conjunction with financial assets and liabilities measured at fair
value through profit or loss.
-- 'Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives, measured at
fair value through profit or loss'. This includes interest income,
interest expense and dividend income in respect of financial assets
and liabilities measured at fair value through profit or loss; and
those derivatives managed in conjunction with the above that can be
separately identifiable from other trading derivatives.
-- 'Changes in fair value of designated debt instruments and
related derivatives'. Interest paid on debt instruments and
interest cash flows on related derivatives is presented in interest
expense where doing so reduces an accounting mismatch.
-- 'Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or loss'. This
includes interest on instruments that fail the solely payments of
principal and interest ('SPPI') test. See (d) below.
The accounting policies for insurance premium income are
disclosed in Note 1.2(j).
(c) Valuation of financial instruments
All financial instruments are initially recognised at fair
value. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value
of a financial instrument on initial recognition is generally its
transaction price (that is, the fair value of the consideration
given or received). However, if there is a difference between the
transaction price and the fair value of financial instruments whose
fair value is based on a quoted price in an active market or a
valuation technique that uses only data from observable markets,
the group recognises the difference as a trading gain or loss at
inception ('a day 1 gain or loss'). In all other cases, the entire
day 1 gain or loss is deferred and recognised in the income
statement over the life of the transaction until the transaction
matures, is closed out, the valuation inputs become observable or
the group enters into an offsetting transaction.
The fair value of financial instruments is generally measured on
an individual basis. However, in cases where the group manages a
group of financial assets and liabilities according to its net
market or credit risk exposure, the fair value of the group of
financial instruments is measured on a net basis but the underlying
financial assets and liabilities are presented separately in the
Consolidated Financial Statements, unless they satisfy the HKFRSs
offsetting criteria.
Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market
data, which is assumed to include the potential effects of a variety
of factors including climate-related risks. However, certain financial
instruments are classified on the basis of valuation techniques that
feature one or more significant market inputs that are unobservable,
and for them, the measurement of fair value is more judgemental.
=======================================================================================================================
* An instrument in its entirety is classified as valued * Details on the group's level 3 financial instruments
using significant unobservable inputs if, in the and the sensitivity of their valuation to the effect
opinion of management, a significant proportion of of applying reasonably possible alternative
the instrument's inception profit or greater than 5% assumptions in determining their fair value are set
of the instrument's valuation is driven by out in Note 33.
unobservable inputs.
* 'Unobservable' in this context means that there is
little or no current market data available from which
to determine the price at which an arm's length
transaction would be likely to occur. It generally
does not mean that there is no data available at all
upon which to base a determination of fair value
(consensus pricing data may, for example, be used).
=========================================================== ==========================================================
(d) Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash
flows and which contain contractual terms that give rise on
specified dates to cash flows that are solely payments of principal
and interest are measured at amortised cost. Such financial assets
include most loans and advances to banks and customers and some
debt securities. In addition, most financial liabilities are
measured at amortised cost. The group accounts for regular way
amortised cost financial instruments using trade date accounting.
The carrying value of these financial assets at initial recognition
includes any directly attributable transactions costs.
The group may commit to underwriting loans on fixed contractual
terms for specified periods of time. When the loan arising from the
lending commitment is expected to be sold shortly after
origination, the commitment to lend is recorded as a derivative.
When the group intends to hold the loan, the loan commitment is
included in the impairment calculations set out below.
Non-trading reverse repurchase, repurchase and similar
agreements
When debt securities are sold subject to a commitment to
repurchase them at a predetermined price ('repos'), they remain on
the balance sheet and a liability is recorded in respect of the
consideration received. Securities purchased under commitments to
resell ('reverse repos') are not recognised on the balance sheet
and an asset is recorded in respect of the initial consideration
paid. Non-trading repos and reverse repos are measured at amortised
cost. The difference between the sale and repurchase price, or
between the purchase and resale price, is treated as interest and
recognised in net interest income over the life of the
agreement.
Contracts that are economically equivalent to reverse repo or
repo agreements (such as sales or purchases of debt securities
entered into together with total return swaps with the same
counterparty) are accounted for similarly to, and presented
together with, reverse repo or repo agreements.
(e) Financial assets measured at fair value through other comprehensive income ('FVOCI')
Financial assets held for a business model that is achieved by
both collecting contractual cash flows and selling and which
contain contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest are
measured at FVOCI. These comprise primarily debt securities. They
are recognised on the trade date when the group enters into
contractual arrangements to purchase and are normally derecognised
when they are either sold or redeemed. They are subsequently
remeasured at fair value and changes therein (except for those
relating to impairment, interest income and foreign currency
exchange gains and losses) are recognised in OCI until the assets
are sold. Upon disposal, the cumulative gains or losses in OCI are
recognised in the income statement as 'Gains less losses from
financial instruments'. Financial assets measured at FVOCI are
included in the impairment calculations set out below and
impairment is recognised in the income statement.
(f) Equity securities measured at fair value with fair value movements presented in OCI
The equity securities for which fair value movements are shown
in OCI are business facilitation and other similar investments
where the group holds the investments other than to generate a
capital return. Gains or losses on the derecognition of these
equity securities are not transferred to the income statement.
Dividend income is recognised in the income statement.
(g) Financial instruments designated at fair value through profit or loss
Financial instruments, other than those held for trading, are
classified in this category if they meet one or more of the
criteria set out below and are so designated irrevocably at
inception:
-- The use of the designation removes or significantly reduces an accounting mismatch.
-- A group of financial assets and liabilities or a group of
financial liabilities is managed and its performance is evaluated
on a fair value basis, in accordance with a documented risk
management or investment strategy.
-- The financial liability contains one or more non-closely related embedded derivatives.
Designated financial assets are recognised when the group enters
into contracts with counterparties, which is generally on trade
date, and are normally derecognised when the rights to the cash
flows expire or are transferred.
Designated financial liabilities are recognised when the group
enters into contracts with counterparties, which is generally on
settlement date, and are normally derecognised when extinguished.
Subsequent changes in fair values are recognised in the income
statement in 'Net income from financial instruments held for
trading or managed on a fair value basis' or 'Net income/(expense)
from assets and liabilities of insurance businesses, including
related derivatives, measured at fair value through profit or loss'
or 'Changes in fair value of designated debt and related
derivatives' except for the effect of changes in the liabilities'
credit risk which is presented in OCI, unless that treatment would
create or enlarge an accounting mismatch in profit or loss.
Under the above criterion, the main classes of financial
instruments designated by the group are:
-- Debt instruments for funding purposes that are designated to
reduce an accounting mismatch. The interest and/or foreign exchange
exposure on certain fixed rate debt securities issued has been
matched with the interest and/or foreign exchange exposure on
certain swaps as part of a documented risk management strategy.
-- Financial assets and financial liabilities under unit-linked
and non-linked investment contracts. A contract under which the
group does not accept significant insurance risk from another party
is not classified as an insurance contract, other than investment
contracts with discretionary participation features ('DPF'), but is
accounted for as a financial liability. Customer liabilities under
linked and certain non-linked investment contracts issued by
insurance subsidiaries are determined based on the fair value of
the assets held in the linked funds. If no fair value designation
was made for the related assets, at least some of the assets would
otherwise be measured at either fair value through OCI or amortised
cost. The related financial assets and liabilities are managed and
reported to management on a fair value basis. Designation at fair
value of the financial assets and related liabilities allows
changes in fair values to be recorded in the income statement and
presented in the same line.
-- Financial liabilities that contain both deposit and
derivative components: These financial liabilities are managed and
their performance evaluated on a fair value basis.
(h) Derivatives
Derivatives are financial instruments that derive their value
from the price of underlying items such as equities, interest rates
or other indices. Derivatives are recognised initially and are
subsequently measured at fair value through profit or loss.
Derivatives are classified as assets when their fair value is
positive or as liabilities when their fair value is negative. This
includes embedded derivatives in financial liabilities which are
bifurcated from the host contract when they meet the definition of
a derivative on a stand-alone basis.
Where the derivatives are managed with debt securities issued by
the group that are designated at fair value where doing so reduces
an accounting mismatch, the contractual interest is shown in
'Interest expense' together with the interest payable on the issued
debt.
Hedge accounting
When derivatives are not part of fair value designated
relationships, if held for risk management purposes they are
designated in hedge accounting relationships where the required
criteria for documentation and hedge effectiveness are met. The
group uses these derivatives or, where allowed, other
non-derivative hedging instruments in fair value hedges, cash flow
hedges or hedges of net investments in foreign operations as
appropriate to the risk being hedged.
Fair value hedge
Fair value hedge accounting does not change the recording of
gains and losses on derivatives and other hedging instruments, but
results in recognising changes in the fair value of the hedged
assets or liabilities attributable to the hedged risk that would
not otherwise be recognised in the income statement. If a hedge
relationship no longer meets the criteria for hedge accounting,
hedge accounting is discontinued and the cumulative adjustment to
the carrying amount of the hedged item is amortised to the income
statement on a recalculated effective interest rate, unless the
hedged item has been derecognised, in which case it is recognised
in the income statement immediately.
Cash flow hedge
The effective portion of gains and losses on hedging instruments
is recognised in OCI and the ineffective portion of the change in
fair value of derivative hedging instruments that are part of a
cash flow hedge relationship is recognised immediately in the
income statement within 'Net income from financial instruments held
for trading or managed on a fair value basis'. The accumulated
gains and losses recognised in OCI are reclassified to the income
statement in the same periods in which the hedged item affects
profit or loss. When a hedge relationship is discontinued, or
partially discontinued, any cumulative gain or loss recognised in
OCI remains in equity until the forecast transaction is recognised
in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss previously
recognised in OCI is immediately reclassified to the income
statement.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic
hedges of assets and liabilities for which hedge accounting was not
applied.
(i) Impairment of amortised cost and FVOCI financial assets
Expected credit losses ('ECL') are recognised for loans and
advances to banks and customers, non-trading reverse repurchase
agreements, other financial assets held at amortised cost, debt
instruments measured at fair value through other comprehensive
income ('FVOCI'), and certain loan commitments and financial
guarantee contracts. At initial recognition, an allowance (or
provision in the case of some loan commitments and financial
guarantees) is required for ECL resulting from default events that
are possible within the next 12 months (or less, where the
remaining life is less than 12 months) ('12-month ECL'). In the
event of a significant increase in credit risk, an allowance (or
provision) is required for ECL resulting from all possible default
events over the expected life of the financial instrument
('lifetime ECL'). Financial assets where 12-month ECL is recognised
are considered to be 'stage 1'; financial assets that are
considered to have experienced a significant increase in credit
risk are in 'stage 2'; and financial assets for which there is
objective evidence of impairment so are considered to be in default
or otherwise credit-impaired are in 'stage 3'. Purchased or
originated credit-impaired financial assets ('POCI') are treated
differently as set out below.
Credit-impaired (stage 3)
The group determines that a financial instrument is
credit-impaired and in stage 3 by considering relevant objective
evidence, primarily whether contractual payments of either
principal or interest are past due for more than 90 days, there are
other indications that the borrower is unlikely to pay such as that
a concession has been granted to the borrower for economic or legal
reasons relating to the borrower's financial condition, or the loan
is otherwise considered to be in default.
If such unlikeliness to pay is not identified at an earlier
stage, it is deemed to occur when an exposure is 90 days past due,
even where regulatory rules permit default to be defined based on
180 days past due. Therefore, the definitions of credit-impaired
and default are aligned as far as possible so that stage 3
represents all loans that are considered defaulted or otherwise
credit-impaired.
Interest income is recognised by applying the effective interest
rate to the amortised cost amount, i.e. gross carrying amount less
ECL allowance.
Write-off
Financial assets (and the related impairment allowances) are
normally written off, either partially or in full, when there is no
realistic prospect of recovery. Where loans are secured, this is
generally after receipt of any proceeds from the realisation of
security. In circumstances where the net realisable value of any
collateral has been determined and there is no reasonable
expectation of further recovery, write-off may be earlier.
Forbearance
Loans are identified as forborne and classified as either
performing or non-performing when the group modifies the
contractual terms due to financial difficulty of the borrower.
Non-performing forborne loans are stage 3 and classified as
non-performing until they meet the cure criteria, as specified by
applicable credit risk policy (for example, when the loan is no
longer in default and no other indicators of default have been
present for at least 12 months). Any amount written off as a result
of any modification of contractual terms upon entering forbearance
would not be reversed.
In 2022, the group adopted the EBA Guidelines on the application
of definition of default for our retail portfolios, which affects
credit risk policies and our reporting in respect of the status of
loans as credit impaired principally due to forbearance (or curing
thereof). Further details are provided under 'Forborne loans and
advances' on page 32.
Performing forborne loans are initially stage 2 and remain
classified as forborne until they meet applicable cure criteria
(for example, they continue to not be in default and no other
indicators of default are present for a period of at least 24
months). At this point, the loan is either stage 1 or stage 2 as
determined by comparing the risk of a default occurring at the
reporting date (based on the modified contractual terms) and the
risk of a default occurring at initial recognition (based on the
original, unmodified contractual terms).
A forborne loan is derecognised if the existing agreement is
cancelled and a new agreement is made on substantially different
terms, or if the terms of an existing agreement are modified such
that the forborne loan is a substantially different financial
instrument. Any new loans that arise following derecognition events
in these circumstances would generally be classified as POCI and
will continue to be disclosed as forborne.
Loan modifications other than forborne loans
Loan modifications that are not identified as forborne are
considered to be commercial restructurings. Where a commercial
restructuring results in a modification (whether legalised through
an amendment to the existing terms or the issuance of a new loan
contract) such that 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. The rights to cash flows
are generally considered to have expired if the commercial
restructure is at market rates and no payment-related concession
has been provided. Modifications of certain higher credit risk
wholesale loans are assessed for derecognition having regard to
changes in contractual terms that either individually or in
combination are judged to result in a substantially different
financial instrument. Mandatory and general offer loan
modifications that are not borrower specific, for example
market-wide customer relief programmes, generally do not result in
derecognition, but their stage allocation is determined considering
all available and supportable information under our ECL impairment
policy. Changes made to these financial instruments that are
economically equivalent and required by interest rate benchmark
reform do not result in the derecognition or a change in the
carrying amount of the financial instrument, but instead require
the effective interest rate to be updated to reflect the change of
the interest rate benchmark.
Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly
since initial recognition is performed at each reporting period by
considering the change in the risk of default occurring over the
remaining life of the financial instrument. The assessment
explicitly or implicitly compares the risk of default occurring at
the reporting date compared with that at initial recognition,
taking into account reasonable and supportable information,
including information about past events, current conditions and
future economic conditions. The assessment is unbiased,
probability-weighted, and to the extent relevant, uses
forward-looking information consistent with that used in the
measurement of ECL. The analysis of credit risk is multifactor. The
determination of whether a specific factor is relevant and its
weight compared with other factors depends on the type of product,
the characteristics of the financial instrument and the borrower,
and the geographical region. Therefore, it is not possible to
provide a single set of criteria that will determine what is
considered to be a significant increase in credit risk and these
criteria will differ for different types of lending, particularly
between retail and wholesale.
However, unless identified at an earlier stage, all financial
assets are deemed to have suffered a significant increase in credit
risk when
30 days past due. In addition, wholesale loans that are
individually assessed, which are typically corporate and commercial
customers, and included on a watch or worry list are included in
stage 2.
For wholesale portfolios, the quantitative comparison assesses
default risk using a lifetime probability of default ('PD') which
encompasses a wide range of information including the obligor's
customer risk rating ('CRR'), macroeconomic condition forecasts and
credit transition probabilities. For origination CRRs up to 3.3,
significant increase in credit risk is measured by comparing the
average PD for the remaining term estimated at origination with the
equivalent estimation at the reporting date. The quantitative
measure of significance varies depending on the credit quality at
origination as follows:
0.1-1.2 15bps
------- -----
2.1-3.3 30bps
------- -----
For CRRs greater than 3.3 that are not impaired, a significant
increase in credit risk is considered to have occurred when the
origination PD has doubled. The significance of changes in PD was
informed by expert credit risk judgement, referenced to historical
credit migrations and to relative changes in external market
rates.
For loans originated prior to the implementation of HKFRS 9, the
origination PD does not include adjustments to reflect expectations
of future macroeconomic conditions since these are not available
without the use of hindsight. In the absence of this data,
origination PD must be approximated assuming through-the-cycle PDs
and through-the-cycle migration probabilities, consistent with the
instrument's underlying modelling approach and the CRR at
origination. For these loans, the quantitative comparison is
supplemented with additional CRR deterioration based thresholds as
set out in the table below:
0.1 5 notches
------- ---------
1.1-4.2 4 notches
------- ---------
4.3-5.1 3 notches
------- ---------
5.2-7.1 2 notches
------- ---------
7.2-8.2 1 notch
------- ---------
8.3 0 notch
------- ---------
Further information about the 23-grade scale used for CRR can be
found on page 32.
For retail portfolios, default risk is assessed using a
reporting date 12-month PD derived from credit scores, which
incorporate all available information about the customer. This PD
is adjusted for the effect of macroeconomic forecasts for periods
longer than 12 months and is considered to be a reasonable
approximation of a lifetime PD measure. Retail exposures are first
segmented into homogenous portfolios, generally by country, product
and brand. Within each portfolio, the stage 2 accounts are defined
as accounts with an adjusted 12-month PD greater than the average
12-month PD of loans in that portfolio 12 months before they become
30 days past due. The expert credit risk judgement is that no prior
increase in credit risk is significant. This portfolio-specific
threshold therefore identifies loans with a PD higher than would be
expected from loans that are performing as originally expected and
higher than that which would have been acceptable at origination.
It therefore approximates a comparison of origination to reporting
date PDs.
As additional data becomes available, the retail transfer
criteria approach continues to be refined to utilise a more
relative approach for certain portfolios. These enhancements take
advantage of the increase in origination related data in the
assessment of significant increases in credit risk by comparing
remaining lifetime PD to the comparable remaining term lifetime PD
at origination based on portfolio-specific origination segments.
These enhancements resulted in significant migrations of loans to
customers gross carrying amounts from stage 1 to stage 2, but did
not have a significant impact on the overall ECL for these
portfolios in 2022 due to low loan-to-value ratios.
Unimpaired and without significant increase in credit risk -
(stage 1)
ECL resulting from default events that are possible within the
next 12 months is recognised for financial instruments that remain
in
stage 1.
Purchased or originated credit-impaired ('POCI')
Financial assets that are purchased or originated at a deep
discount that reflects the incurred credit losses are considered to
be POCI. This population includes new financial instruments
recognised in most cases following the derecognition of forborne
loans. The amount of change in lifetime ECL for a POCI loan is
recognised in profit or loss until the POCI loan is derecognised,
even if the lifetime ECL are less than the amount of ECL included
in the estimated cash flows on initial recognition.
Movement between stages
Financial assets can be transferred between the different
categories (other than POCI) depending on their relative increase
in credit risk since initial recognition. Financial instruments are
transferred out of stage 2 if their credit risk is no longer
considered to be significantly increased since initial recognition
based on the assessments described above. In the case of
non-performing forborne loans, such financial instruments are
transferred out of stage 3 when they no longer exhibit any evidence
of credit impairment and meet the curing criteria as described
above.
Measurement of ECL
The assessment of credit risk, and the estimation of ECL, are
unbiased and probability-weighted, and incorporate all available
information which is relevant to the assessment including
information about past events, current conditions and reasonable
and supportable forecasts of future events and economic conditions
at the reporting date. In addition, the estimation of ECL should
take into account the time value of money and considers other
factors such as climate-related risks.
In general, the group calculates ECL using three main
components, a probability of default, a loss given default ('LGD')
and the exposure at default ('EAD').
The 12-month ECL is calculated by multiplying the 12-month PD,
LGD, and EAD. Lifetime ECL is calculated using the lifetime PD
instead. The 12-month and lifetime PDs represent the probability of
default occurring over the next 12 months and the remaining
maturity of the instrument respectively.
The EAD represents the expected balance at default, taking into
account the repayment of principal and interest from the balance
sheet date to the default event together with any expected
drawdowns of committed facilities. The LGD represents expected
losses on the EAD given the event of default, taking into account,
among other attributes, the mitigating effect of collateral value
at the time it is expected to be realised and the time value of
money.
The group makes use of the Basel II IRB framework where
possible, with recalibration to meet the differing HKFRS 9
requirements as set out in the following table:
PD
* Through the cycle (represents long-run average PD * Point in time (based on current conditions, adjusted
throughout a full economic cycle). to take into account estimates of future conditions
that will impact PD).
* The definition of default includes a backstop of 90+
days past due. * Default backstop of 90+ days past due for all
portfolios.
----- ---------------------------------------------------------- -----------------------------------------------------------
EAD
* Cannot be lower than current balance. * Amortisation captured for term products.
----- ---------------------------------------------------------- -----------------------------------------------------------
LGD
* Downturn LGD (consistent losses expected to be * Expected LGD (based on estimate of loss given default
suffered during a severe but plausible economic including the expected impact of future economic
downturn). conditions such as changes in value of collateral).
* Regulatory floors may apply to mitigate risk of * No floors.
underestimating downturn LGD due to lack of
historical data.
* Discounted using the original effective interest rate
of the loan.
* Discounted using cost of capital.
* Only costs associated with obtaining/selling
* All collection costs included. collateral included.
----- ---------------------------------------------------------- -----------------------------------------------------------
Other
* Discounted back from point of default to balance
sheet date.
----- ---------------------------------------------------------- -----------------------------------------------------------
While 12-month PDs are recalibrated from Basel models where
possible, the lifetime PDs are determined by projecting the
12-month PD using a term structure. For the wholesale methodology,
the lifetime PD also takes into account credit migration, i.e. a
customer migrating through the CRR bands over its life.
The ECL for wholesale stage 3 is determined on an individual
basis using a discounted cash flow ('DCF') methodology. The
expected future cash flows are based on the credit risk officer's
estimates as of the reporting date, reflecting reasonable and
supportable assumptions and projections of future recoveries and
expected future receipts of interest.
Collateral is taken into account if it is likely that the
recovery of the outstanding amount will include realisation of
collateral based on the estimated fair value of collateral at the
time of expected realisation, less costs for obtaining and selling
the collateral.
The cash flows are discounted at a reasonable approximation of
the original effective interest rate. For significant cases, cash
flows under four different scenarios are probability-weighted by
reference to the economic scenarios applied more generally by the
group and the judgement of the credit risk officer in relation to
the likelihood of the work-out strategy succeeding or receivership
being required. For less significant cases, the effect of different
economic scenarios and work-out strategies is approximated and
applied as an adjustment to the most likely outcome.
Period over which ECL is measured
ECL is measured from the initial recognition of the financial
asset. The maximum period considered when measuring ECL (be it
12-month or lifetime ECL) is the maximum contractual period over
which the group is exposed to credit risk. However, where the
financial instrument includes both a drawn and undrawn commitment
and the contractual ability to demand repayment and cancel the
undrawn commitment does not serve to limit the group's exposure to
credit risk to the contractual notice period, the contractual
period does not determine the maximum period considered. Instead,
ECL is measured over the period the group remains exposed to credit
risk that is not mitigated by credit risk management actions. This
applies to retail overdrafts and credit cards, where the period is
the average time taken for stage 2 exposures to default or close as
performing accounts, determined on a portfolio basis and ranging
from between two and six years. In addition, for these facilities
it is not possible to identify the ECL on the loan commitment
component separately from the financial asset component. As a
result, the total ECL is recognised in the loss allowance for the
financial asset unless the total ECL exceeds the gross carrying
amount of the financial asset, in which case the ECL is recognised
as a provision. For wholesale overdraft facilities, credit risk
management actions are taken
no less frequently than on an annual basis.
Forward-looking economic inputs
The group applies multiple forward-looking global economic
scenarios determined with reference to external forecast
distributions representative of its view of forecast economic
conditions. This approach is considered sufficient to calculate
unbiased expected loss in most economic environments. In certain
economic environments, additional analysis may be necessary and may
result in additional scenarios or adjustments, to reflect a range
of possible economic outcomes sufficient for an unbiased estimate.
The detailed methodology is disclosed in 'Measurement uncertainty
and sensitivity analysis of ECL estimates' on pages 37 to 41.
Critical accounting estimates and judgements
The calculation of the group's ECL under HKFRS 9 requires the group
to make a number of judgements, assumptions and estimates. The most
significant are set out below:
=======================================================================================================================
* Defining what is considered to be a significant * The sections 'Measurement uncertainty and sensitivity
increase in credit risk. analysis of ECL estimates' marked as audited from
pages 37 to 41, set out the assumptions used in
determining ECL and provide an indication of the
* Determining the lifetime and point of initial sensitivity of the result to the application of
recognition of overdrafts and credit cards. different weightings being applied to different
economic assumptions.
* Selecting and calibrating the PD, LGD and EAD models
,
which support the calculations, including making
reasonable and supportable judgements about how
models react to current and future economic
conditions.
* Selecting model inputs and economic forecasts,
including determining whether sufficient and
appropriately weighted economic forecasts are
incorporated to calculate unbiased expected loss.
* Making management adjustments to account for late
breaking events, model and data limitations and
deficiencies, and expert credit judgements.
* Selecting applicable recovery strategies for certain
wholesale credit-impaired loans.
========================================================== ===========================================================
(j) Insurance contracts
A contract is classified as an insurance contract where the
group accepts significant insurance risk from another party by
agreeing to compensate that party on the occurrence of a specified
uncertain future event. An insurance contract may also transfer
financial risk, but is accounted for as an insurance contract if
the insurance risk is significant. In addition, the group issues
investment contracts with discretionary participation features
('DPF') which are also accounted for as insurance contracts as
required by HKFRS 4 'Insurance Contracts'.
Net insurance premium income
Premiums for life insurance contracts are accounted for when
receivable, except in unit-linked insurance contracts where
premiums are accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting
period as the premiums for the direct insurance contracts to which
they relate.
Net insurance claims and benefits paid and movements in
liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the
total cost of claims arising during the year, including claim
handling costs and any policyholder bonuses allocated in
anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders
are recognised when paid or at an earlier date on which, following
notification, the policy ceases to be included within the
calculation of the related insurance liabilities. Death claims are
recognised when notified.
Reinsurance recoveries are accounted for in the same period as
the related claim.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation
benefits to policyholders, liabilities for these contracts include
provisions for the future discretionary benefits to policyholders.
These provisions reflect the actual performance of the investment
portfolio to date and management's expectation of the future
performance of the assets backing the contracts, as well as other
experience factors such as mortality, lapses and operational
efficiency, where appropriate. The benefits to policyholders may be
determined by the contractual terms, regulation, or past
distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments,
they continue to be treated as insurance contracts as required
by
HKFRS 4. The group therefore recognises the premiums for these
contracts as revenue and recognises as an expense the resulting
increase in the carrying amount of the liability.
In the case of net unrealised investment gains on these
contracts, whose discretionary benefits principally reflect the
actual performance of the investment portfolio, the corresponding
increase in the liabilities is recognised in either the income
statement or OCI, following the treatment of the unrealised gains
on the relevant assets. In the case of net unrealised losses, a
deferred participating asset is recognised only to the extent that
its recoverability is highly probable. Movements in the liabilities
arising from realised gains and losses on relevant assets are
recognised in the income statement.
Liabilities under insurance contracts and present value of
in-force long-term insurance business
Liabilities under non-linked life insurance contracts are
calculated by each life insurance operation based on local
actuarial principles. Liabilities under unit-linked life insurance
contracts are at least equivalent to the surrender or transfer
value, which is calculated by reference to the value of the
relevant underlying funds or indices.
The group recognises the value placed on insurance contracts and
investment contracts with DPF, which are classified as long-term
and in-force at the balance sheet date, as an asset. The PVIF asset
is presented gross of attributable tax in the balance sheet and
movements in the PVIF asset are included in 'Other operating
income' on a gross of tax basis.
Critical accounting estimates and judgements
The valuation of the PVIF and insurance contract liabilities are dependent
on economic assumptions (e.g. future investment returns) and non-economic
assumptions (e.g. related to policyholder behaviour or demographics).
========================================================================================================================
* The PVIF asset represents the value of the equity * The assumptions are reassessed at each reporting date
holders' interest in the issuing insurance companies' and changes in the estimates which affect the value
profits expected to emerge from these contracts of PVIF and Insurance contract liabilities are
written at the balance sheet date. It is determined reflected in the income statement. More information
by discounting those expected future profits using is included in Note 15 for PVIF and Note 3 for
appropriate assumptions in assessing factors such as liabilities under insurance contracts.
future mortality, lapse rates, investment returns and
levels of expenses, and a risk discount rate that
reflects the risk premium attributable to the * The sections marked as audited on pages 68 to 72,
respective contracts. The PVIF incorporates 'Insurance manufacturing operations risk management'
allowances for both non-market risk and the value of provide an indication of the sensitivity of the
financial options and guarantees. result to the application of different weightings
being applied to different economic and non-economic
assumptions.
* Insurance contract liabilities are set in accordance
with local actuarial principles in each market,
aligned with local regulatory measurement frameworks.
Core judgements made in applying these frameworks
include demographic and behavioural assumptions,
expense assumptions and investment return
assumptions.
=========================================================== ===========================================================
(k) Property
Land and buildings
Land and buildings held for own use are carried at their
revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and
impairment losses.
Revaluations are performed by professional qualified valuers, on
a market basis, with sufficient regularity to ensure that the net
carrying amount does not differ materially from the fair value.
Surpluses arising on revaluation are credited firstly to the income
statement, to the extent of any deficits arising on revaluation
previously charged to the income statement in respect of the same
land and buildings, and are thereafter taken to the 'Property
revaluation reserve'. Deficits arising on revaluation are first set
off against any previous revaluation surpluses included in the
'Property revaluation reserve' in respect of the same land and
buildings, and are thereafter recognised in the income
statement.
Leasehold land and buildings are depreciated on a straight-line
basis over the shorter of the unexpired terms of the leases or the
remaining useful lives.
The Government of Hong Kong owns all the land in Hong Kong and
permits its use under leasehold arrangements. Similar arrangements
exist in mainland China. The group accounts for its interests in
own use leasehold land and land use rights in accordance with HKFRS
16 but discloses these as owned assets when the right of use are
considered sufficient to constitute control.
Investment properties
The group holds certain properties as investments to earn
rentals or for capital appreciation, or both, and those investment
properties are included on balance sheet at fair value with changes
in fair value being recognised in the income statement.
(l) Employee compensation and benefits
Post-employment benefit plans
The group operates a number of pension schemes including defined
benefit, defined contribution, and post-employment benefit
schemes.
Payments to defined contribution schemes are charged as an
expense as the employees render service.
Defined benefit pension obligations are calculated using the
projected unit credit method. The net charge to the income
statement mainly comprises the service cost and the net interest on
the net defined benefit asset or liability, and is presented in
operating expenses.
Remeasurements of the net defined benefit asset or liability,
which comprise actuarial gains and losses, return on plan assets
excluding interest and the effect of the asset ceiling (if any,
excluding interest), are recognised immediately in OCI. The net
defined benefit asset or liability represents the present value of
defined benefit obligations reduced by the fair value of plan
assets, after applying the asset ceiling test, where the net
defined benefit surplus is limited to the present value of
available refunds and reductions in future contributions to the
plan.
(m) Tax
Income tax comprises current tax and deferred tax. Income tax is
recognised in the income statement except to the extent that it
relates to items recognised in OCI or directly in equity, in which
case the tax is recognised in the same statement as the related
item appears.
Current tax is the tax expected to be payable on the taxable
profit for the year and on any adjustment to tax payable in respect
of previous years. The group provides for potential current tax
liabilities that may arise on the basis of the amounts expected to
be paid to the tax authorities.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the balance sheet,
and the amounts attributed to such assets and liabilities for tax
purposes. Deferred tax is calculated using the tax rates expected
to apply in the periods in which the assets will be realised or the
liabilities settled.
In assessing the probability and sufficiency of future taxable
profit, management considers the availability of evidence to
support the recognition of deferred tax assets. taking into account
the inherent risks in long-term forecasting, including climate
change-related, and drivers of recent history of tax losses where
applicable. Management also considers the future reversal of
existing taxable temporary differences and tax planning strategies,
including corporate reorganisations.
Current and deferred tax are calculated based on tax rates and
laws enacted, or substantively enacted, by the balance sheet
date.
(n) Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of
economic benefits will be required to settle a present legal or
constructive obligation that has arisen as a result of past events
and for which a reliable estimate can be made.
Contingent liabilities and guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and
letters of credit pledged as collateral security, and contingent
liabilities related to legal proceedings or regulatory matters, are
not recognised in the Consolidated Financial Statements but are
disclosed unless the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts that are not
classified as insurance contracts are recorded initially at their
fair value, which is generally the fee received or present value of
the fee receivable.
The Bank has issued financial guarantees and similar contracts
to other group entities. The group elects to account for certain
guarantees as insurance contracts in the Bank's financial
statements, in which case they are measured and recognised as
insurance liabilities. This election is made on a
contract-by-contract basis, and is irrevocable.
(o) Impairment of non-financial assets
Software under development is tested for impairment at least
annually. Other non-financial assets such as property, plant and
equipment, intangible assets (excluding goodwill) and right-of-use
assets are tested for impairment at the individual asset level when
there is indication of impairment at that level, or at the CGU
level for assets that do not have a recoverable amount at the
individual asset level. In addition, impairment is also tested at
the CGU level when there is indication of impairment at that level.
For this purpose, CGUs are considered to be the principal operating
legal entities and branches divided in a similar manner as the
group's operating segments.
Impairment testing compares the carrying amount of the
non-financial asset or CGU with its recoverable amount, which is
the higher of the fair value less costs of disposal or the value in
use. The carrying amount of a CGU comprises the carrying value of
its assets and liabilities, including non-financial assets that are
directly attributable to it and non-financial assets that can be
allocated to it on a reasonable and consistent basis. Non-financial
assets that cannot be allocated to an individual CGU are tested for
impairment at an appropriate grouping of CGUs. The recoverable
amount of the CGU is the higher of the fair value less costs of
disposal of the CGU, which is determined by independent and
qualified valuers where relevant, and the value in use, which is
calculated based on appropriate inputs.
When the recoverable amount of a CGU is less than its carrying
amount, an impairment loss is recognised in the income statement to
the extent that the impairment can be allocated on a pro-rata basis
to the non-financial assets by reducing their carrying amounts to
the higher of their respective individual recoverable amount or
nil. This impairment is not allocated to financial assets within a
CGU.
Impairment loss recognised in prior periods for non-financial
assets is reversed when there has been a change in the estimate
used to determine the recoverable amount. The impairment loss is
reversed to the extent that the carrying amount of the
non-financial assets would not exceed the amount that would have
been determined (net of amortisation or depreciation) had no
impairment loss been recognised in prior periods.
2 Operating profit
----------------
(a) Net interest income
Net interest income includes:
2022 2021
HK$m HK$m
-------------------------------------------------------------- ------------------------ -------------------------
Interest income recognised on impaired financial assets 821 315
-------------------------------------------------------------- ------------------------ -------------------------
Interest income recognised on financial assets measured
at amortised cost 158,552 106,916
-------------------------------------------------------------- ------------------------ -------------------------
Interest income recognised on financial assets measured
at FVOCI 21,563 14,461
-------------------------------------------------------------- ------------------------ -------------------------
Interest expense on financial instruments, excluding interest
on financial liabilities held for trading or designated
or otherwise mandatorily measured at fair value(1) (47,525) (20,907)
-------------------------------------------------------------- ------------------------ -------------------------
1 Includes interest expenses on lease liabilities of HK$265m (2021: HK$374m).
(b) Net fee income
Net fee income by reportable
segments
-------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Wealth
and Markets
Personal Commercial Global and Securities Corporate Other
Banking Banking Banking Services Centre(1) (GBM-other) Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Account services 807 979 366 75 - - 2,227
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Funds under
management 4,894 592 16 1,824 - - 7,326
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Cards 7,826 257 52 - - - 8,135
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Credit
facilities 332 1,303 1,186 25 - - 2,846
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Broking income 3,513 53 - 737 - - 4,303
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Imports/exports - 2,465 667 - - - 3,132
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Unit trusts 4,534 112 2 - - - 4,648
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Underwriting - - 325 237 - - 562
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Remittances 264 1,902 723 3 - - 2,892
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Global custody 858 39 32 3,174 - - 4,103
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Insurance agency
commission 1,434 107 5 - - - 1,546
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Other 3,132 2,638 2,322 3,240 (2,214) (216) 8,902
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Fee income 27,594 10,447 5,696 9,315 (2,214) (216) 50,622
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Fee expense (9,699) (720) (610) (5,614) 2,461 160 (14,022)
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Year ended 31
Dec 2022 17,895 9,727 5,086 3,701 247 (56) 36,600
---------------- ------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ------------------------------- -----------------------------
Net fee income by reportable segments (continued)
Wealth
and Markets
Personal Commercial Global and Securities Corporate
Banking Banking Banking Services Centre(1) Other (GBM-other) Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Account services 809 929 367 70 - - 2,175
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Funds under
management 5,927 639 16 2,028 - - 8,610
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Cards 7,559 207 40 - - - 7,806
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Credit
facilities 409 1,371 1,304 62 - - 3,146
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Broking income 5,477 69 - 869 - - 6,415
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Imports/exports - 2,462 594 - - - 3,056
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Unit trusts 7,373 176 1 - - - 7,550
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Underwriting 1 1 869 683 - - 1,554
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Remittances 255 1,843 715 - - - 2,813
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Global custody 976 50 47 3,414 - - 4,487
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Insurance agency
commission 1,326 114 1 - - - 1,441
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Other 2,329 2,675 2,497 3,413 (2,156) 8 8,766
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Fee income 32,441 10,536 6,451 10,539 (2,156) 8 57,819
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Fee expense (8,614) (708) (705) (4,809) 2,399 (86) (12,523)
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
Year ended 31
Dec 2021 23,827 9,828 5,746 5,730 243 (78) 45,296
---------------- --------------------------------- --------------------------------- --------------------------------- ------------------------------- ------------------------------- --------------------------------- ----------------------------
1 Includes inter-segment elimination.
Net fee income includes:
2022 2021
HK$m HK$m
------------------------------------------------------------ ------------------------ --------------------------
Fees earned on financial assets that are not at fair
value through profit and loss (other than amounts included
in determining the effective interest rate) 9,286 9,742
------------------------------------------------------------ ------------------------ --------------------------
- fee income 14,867 15,173
------------------------------------------------------------
- fee expense (5,581) (5,431)
------------------------------------------------------------ ------------------------
Fee earned on trust and other fiduciary activities 8,961 11,242
------------------------------------------------------------ ------------------------ --------------------------
- fee income 11,290 12,801
------------------------------------------------------------
- fee expense (2,329) (1,559)
------------------------------------------------------------ ------------------------
(c) Net income from financial instruments measured at fair value through profit or loss
2022 2021
HK$m HK$m
--------------------------------------------------------- ---------------------------- -----------------------------
Net income/(expense) arising on:
--------------------------------------------------------- ---------------------------- -----------------------------
Net trading activities 43,138 29,888
--------------------------------------------------------- ---------------------------- -----------------------------
Other instruments managed on a fair value basis (1,464) (1,529)
--------------------------------------------------------- ---------------------------- -----------------------------
Net income from financial instruments held for trading
or managed on a fair value basis 41,674 28,359
--------------------------------------------------------- ---------------------------- -----------------------------
Financial assets held to meet liabilities under insurance
and investment contracts (15,075) 17,837
--------------------------------------------------------- ---------------------------- -----------------------------
Liabilities to customers under investment contracts 1,881 343
--------------------------------------------------------- ---------------------------- -----------------------------
Net income/(expense) from assets and liabilities of
insurance businesses, including related derivatives,
measured at fair value through profit or loss (13,194) 18,180
--------------------------------------------------------- ---------------------------- -----------------------------
Change in fair value of designated debt issued and
related
derivatives(1) (703) (639)
--------------------------------------------------------- ---------------------------- -----------------------------
Changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss 34 (25)
--------------------------------------------------------- ---------------------------- -----------------------------
Year ended 31 Dec 27,811 45,875
--------------------------------------------------------- ---------------------------- -----------------------------
1 Includes debt instruments which are issued for funding
purposes and are designated under the fair value option to reduce
an accounting mismatch.
(d) Other operating income
2022 2021
HK$m HK$m
----------------------------------------------------- ------------------------------ -------------------------------
Movement in present value of in-force insurance
business (256) (1,294)
----------------------------------------------------- ------------------------------ -------------------------------
Gains/(losses) on investment properties (133) 277
----------------------------------------------------- ------------------------------ -------------------------------
Losses on disposal of property, plant and equipment
and assets held for sale (42) (54)
----------------------------------------------------- ------------------------------ -------------------------------
Gain on acquisition of subsidiary(1) 665 -
----------------------------------------------------- ------------------------------ -------------------------------
Gains on disposal of subsidiaries, associates and
business
portfolios 4 4
----------------------------------------------------- ------------------------------ -------------------------------
Rental income from investment properties 437 393
----------------------------------------------------- ------------------------------ -------------------------------
Dividend income 233 198
----------------------------------------------------- ------------------------------ -------------------------------
Other 2,873 2,509
----------------------------------------------------- ------------------------------ -------------------------------
Year ended 31 Dec 3,781 2,033
----------------------------------------------------- ------------------------------ -------------------------------
1 Represents a gain of HK$665m from the acquisition of AXA
Insurance Pte Limited. Details are included in Note 37 'Business
acquisitions'.
There was a gain on disposal of loans and receivables of HK$84m
in the year (2021: HK$77m). There was no gain or loss on disposal
of financial liabilities measured at amortised cost (2021: loss of
HK$136m).
(e) Change in expected credit losses and other credit impairment charges
Change in expected credit losses and other credit impairment charges
arising from the following asset categories:
2022 2021
HK$m HK$m
----------------------------------------------- --------------------------- ----------------------------
Loans and advances to banks and customers 15,503 7,055
----------------------------------------------- --------------------------- ----------------------------
- new allowances net of allowance releases 16,383 8,065
-----------------------------------------------
- recoveries of amounts previously written off (880) (1,010)
----------------------------------------------- ---------------------------
Loan commitments and guarantees 409 (683)
----------------------------------------------- --------------------------- ----------------------------
Other financial assets 453 167
----------------------------------------------- --------------------------- ----------------------------
Year ended 31 Dec 16,365 6,539
----------------------------------------------- --------------------------- ----------------------------
Change in expected credit losses as a percentage of average
gross customer advances was 0.40% for 2022 (2021: 0.18%).
(f) General and administrative expenses
2022 2021
HK$m HK$m
----------------------------------- --------------------- -----------------------
Premises and equipment 2,956 2,867
Marketing and advertising expenses 2,622 2,417
----------------------------------- --------------------- -----------------------
Other administrative expenses(1) 48,971 47,043
----------------------------------- --------------------- -----------------------
Year ended 31 Dec 54,549 52,327
----------------------------------- --------------------- -----------------------
1 Include recharges from fellow group entities. Further details are set out in Note 32.
Included in operating expenses were direct operating expenses of
HK$47m (2021: HK$37m) arising from investment properties that
generated rental income in the year. Direct operating expenses
arising from investment properties that did not generate rental
income amounted to HK$9m (2021: HK$4m).
(g) Depreciation and impairment of property, plant and equipment
2022 2021
HK$m HK$m
------------------------------------ --------------------- -----------------------
Owned property, plant and equipment 6,569 6,019
------------------------------------ --------------------- -----------------------
Other right-of-use assets 2,588 2,872
------------------------------------ --------------------- -----------------------
Year ended 31 Dec 9,157 8,891
------------------------------------ --------------------- -----------------------
(h) Auditors' remuneration
Auditors' remuneration amounted to HK$172m (2021: HK$152m).
3 Insurance business
------------------
Net insurance premium income(1)
----------------------- -------------------------- -----------------------
Non-linked
insurance Unit-linked Total
HK$m HK$m HK$m
---------------------------------------- ----------------------- -------------------------- -----------------------
Gross insurance premium income 88,141 1,302 89,443
---------------------------------------- ----------------------- -------------------------- -----------------------
Reinsurers' share of gross insurance
premium income (9,002) (26) (9,028)
---------------------------------------- ----------------------- -------------------------- -----------------------
Year ended 31 Dec 2022 79,139 1,276 80,415
---------------------------------------- ----------------------- -------------------------- -----------------------
Gross insurance premium income 62,937 2,398 65,335
---------------------------------------- ----------------------- -------------------------- -----------------------
Reinsurers' share of gross insurance
premium income (3,594) (19) (3,613)
---------------------------------------- ----------------------- -------------------------- -----------------------
Year ended 31 Dec 2021 59,343 2,379 61,722
---------------------------------------- ----------------------- -------------------------- -----------------------
1 The group's net insurance premium income is presented after
elimination of inter-company transactions between our insurance
manufacturing operations and other group entities.
Net insurance claims and benefits paid and movement in liabilities
to policyholders(1)
Non-linked
insurance Unit-linked Total
HK$m HK$m HK$m
-------------------------------------- ----------------------- ---------------------------- -----------------------
Gross claims and benefits paid and
movement in
liabilities to policyholders 83,114 (4,162) 78,952
-------------------------------------- ----------------------- ---------------------------- -----------------------
- claims, benefits and surrenders paid 29,275 3,800 33,075
--------------------------------------
- movement in liabilities 53,839 (7,962) 45,877
-------------------------------------- ----------------------- ----------------------------
Reinsurers' share of claims and
benefits paid and
movement in liabilities (9,107) (31) (9,138)
-------------------------------------- ----------------------- ---------------------------- -----------------------
- claims, benefits and surrenders paid (7,418) (30) (7,448)
--------------------------------------
- movement in liabilities (1,689) (1) (1,690)
-------------------------------------- ----------------------- ----------------------------
Year ended 31 Dec 2022 74,007 (4,193) 69,814
-------------------------------------- ----------------------- ---------------------------- -----------------------
Gross claims and benefits paid and
movement in
liabilities to policyholders 78,159 1,898 80,057
-------------------------------------- ----------------------- ---------------------------- -----------------------
- claims, benefits and surrenders paid 18,573 6,735 25,308
--------------------------------------
- movement in liabilities 59,586 (4,837) 54,749
-------------------------------------- ----------------------- ----------------------------
Reinsurers' share of claims and
benefits paid and
movement in liabilities (4,013) 4 (4,009)
-------------------------------------- ----------------------- ---------------------------- -----------------------
- claims, benefits and surrenders paid (2,048) (39) (2,087)
--------------------------------------
- movement in liabilities (1,965) 43 (1,922)
-------------------------------------- ----------------------- ----------------------------
Year ended 31 Dec 2021 74,146 1,902 76,048
-------------------------------------- ----------------------- ---------------------------- -----------------------
1 The group's net insurance claims and benefits paid and
movement in liabilities to policyholders is presented after
elimination of inter-company transactions between our insurance
manufacturing operations and other group entities.
Liabilities under insurance contracts
2022 2021
------------------------------------------------------------------------- -----------------------------------------------------------------------------------
Reinsurers' Reinsurers'
Gross share(2) Net Gross share(2) Net
HK$m HK$m HK$m HK$m HK$m HK$m
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Non-linked insurance
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
At 1 Jan 608,500 (27,361) 581,139 547,058 (25,361) 521,697
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Claims and benefits
paid (29,275) 7,418 (21,857) (18,573) 2,048 (16,525)
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Increase/(decrease)
in liabilities
to policyholders 83,114 (9,107) 74,007 78,159 (4,013) 74,146
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Exchange differences
and other
movements(1) 17,120 (3,084) 14,036 1,856 (35) 1,821
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
At 31 Dec 679,459 (32,134) 647,325 608,500 (27,361) 581,139
Unit-linked
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
At 1 Jan 29,645 (5) 29,640 34,348 (4) 34,344
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Claims and benefits
paid 3,800 (30) 3,770 (6,735) 39 (6,696)
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Increase/(decrease)
in liabilities
to policyholders (4,162) (31) (4,193) 1,898 4 1,902
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
Exchange differences
and other
movements(1) (7,984) 49 (7,935) 134 (44) 90
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
At 31 Dec 21,299 (17) 21,282 29,645 (5) 29,640
Total liabilities to
policyholders 700,758 (32,151) 668,607 638,145 (27,366) 610,779
-------------------- --------------------- --------------------------- --------------------- ------------------------- ---------------------------- --------------------------
1 'Exchange differences and other movements' includes movements
in liabilities arising from net unrealised investment gains
recognised in other comprehensive income.
2 Amounts recoverable from reinsurance of liabilities under
insurance contracts are included in the consolidated balance sheet
in 'Prepayment, accrued income and other assets'.
The key factors contributing to the movement in liabilities to
policyholders included movements in the market value of assets
supporting policyholder liabilities, death claims, surrenders,
lapses, liabilities to policyholders created at the initial
inception of the policies, the declaration of bonuses and other
amounts attributable to policyholders.
4 Employee compensation and benefits
----------------------------------
2022 2021
HK$m HK$m
------------------------------------- --------------------------- ----------------------------
Wages and salaries(1) 37,053 35,736
------------------------------------- --------------------------- ----------------------------
Social security costs 1,384 1,344
------------------------------------- --------------------------- ----------------------------
Post-employment benefits 2,225 2,181
------------------------------------- --------------------------- ----------------------------
- defined contribution pension plans 1,758 1,651
-------------------------------------
- defined benefit pension plans 467 530
------------------------------------- ---------------------------
Year ended 31 Dec 40,662 39,261
------------------------------------- --------------------------- ----------------------------
1 'Wages and salaries' includes the effect of share-based
payments arrangements of HK$890m (2021: HK$951m).
Post-employment benefit plans
The group operates a number of post-employment benefit plans for
its employees. Some of these plans are defined benefit plans, of
which the largest plan is The HSBC Group Hong Kong Local Staff
Retirement Benefit Scheme (the 'Principal Plan').
The group's balance sheet includes the net surplus or deficit,
being the difference between the fair value of plan assets and the
discounted value of scheme liabilities at the balance sheet date
for each plan. Surpluses are only recognised to the extent that
they are recoverable through reduced contributions in the future or
through potential future refunds from the schemes. In assessing
whether a surplus is recoverable, the group has considered its
current right to obtain a future refund or a reduction in future
contributions.
Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
Present
value of
Fair value defined Net defined
of benefit benefit
plan assets obligations liability
HK$m HK$m HK$m
--------------------- ------------------------------- -------------------------------- --------------------------------
At 1 Jan 2022 10,075 (11,945) (1,870)
--------------------- ------------------------------- -------------------------------- --------------------------------
Service cost - (429) (429)
--------------------- ------------------------------- -------------------------------- --------------------------------
- current service
cost - (434) (434)
---------------------
- past service cost
and gains from
settlements - 5 5
--------------------- ------------------------------- --------------------------------
Net interest
income/(expense) on
the net defined
benefit
asset/(liability) 162 (197) (35)
--------------------- ------------------------------- -------------------------------- --------------------------------
Re-measurement
effects recognised
in other
comprehensive
income (841) 1,073 232
--------------------- ------------------------------- -------------------------------- --------------------------------
- return on plan
assets (excluding
interest
income) (841) - (841)
---------------------
- actuarial gains - 1,073 1,073
--------------------- ------------------------------- --------------------------------
Contributions by the
group 345 - 345
--------------------- ------------------------------- -------------------------------- --------------------------------
Benefits paid (1,414) 1,487 73
--------------------- ------------------------------- -------------------------------- --------------------------------
Exchange differences
and other movements (61) 122 61
--------------------- ------------------------------- -------------------------------- --------------------------------
At 31 Dec 2022 8,266 (9,889) (1,623)
--------------------- ------------------------------- -------------------------------- --------------------------------
Retirement benefit
liabilities
recognised on
the balance sheet (1,655)
--------------------- ------------------------------- -------------------------------- --------------------------------
Retirement benefit
assets recognised on
the
balance sheet
(within 'Prepayment,
accrued income
and other assets') 32
--------------------- ------------------------------- -------------------------------- --------------------------------
At 1 Jan 2021 10,453 (13,140) (2,687)
--------------------- ------------------------------- --------------------------------- -------------------------------
Service cost - (475) (475)
--------------------- ------------------------------- --------------------------------- -------------------------------
- current service
cost - (492) (492)
---------------------
- past service cost
and gains from
settlements - 17 17
--------------------- ------------------------------- ---------------------------------
Net interest
income/(expense) on
the net defined
benefit
asset/(liability) 79 (125) (46)
--------------------- ------------------------------- --------------------------------- -------------------------------
Re-measurement
effects recognised
in other
comprehensive
income 500 385 885
--------------------- ------------------------------- --------------------------------- -------------------------------
- return on plan
assets (excluding
interest
income) 500 - 500
---------------------
- actuarial gains - 385 385
--------------------- ------------------------------- ---------------------------------
Contributions by the
group 356 - 356
--------------------- ------------------------------- --------------------------------- -------------------------------
Benefits paid (1,340) 1,407 67
--------------------- ------------------------------- --------------------------------- -------------------------------
Exchange differences
and other movements 27 3 30
--------------------- ------------------------------- --------------------------------- -------------------------------
At 31 Dec 2021 10,075 (11,945) (1,870)
--------------------- ------------------------------- --------------------------------- -------------------------------
Retirement benefit
liabilities
recognised on
the balance sheet (1,890)
--------------------- ------------------------------- --------------------------------- -------------------------------
Retirement benefit
assets recognised on
the
balance sheet
(within 'Prepayment,
accrued income
and other assets') 20
--------------------- ------------------------------- --------------------------------- -------------------------------
Fair value of plan assets by asset classes
At 31 Dec 2022 At 31 Dec 2021
------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------
Quoted Quoted
market market
price price in
in active Thereof active Thereof
Value market HSBC Value market HSBC
HK$m HK$m HK$m HK$m HK$m HK$m
------------ ------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------- --------------------------------
Fair value
of plan
assets 8,266 8,266 195 10,075 10,075 257
------------ ------------------------------ ------------------------------ -------------------------------- ------------------------------- ------------------------------- --------------------------------
- equities 1,078 1,078 - 1,232 1,232 -
------------
- bonds 4,622 4,622 - 5,676 5,676 -
------------
-
alternative
investments 2,112 2,112 - 2,490 2,490 -
------------
- other(1) 454 454 195 677 677 257
------------ ------------------------------ ------------------------------ -------------------------------- ------------------------------- -------------------------------
1 Other mainly consists of cash and cash deposits.
The Principal Plan
In Hong Kong, the HSBC Group Hong Kong Local Staff Retirement
Benefit Scheme, the Principal Plan, covers employees of the group
and HSBC Global Services (Hong Kong) Limited (the 'ServCo'), which
is a fellow subsidiary of the group set up in Hong Kong as part of
the recovery and resolution planning to provide functional support
services to the group, as well as certain other local employees of
the Group. The Principal Plan comprises a funded defined benefit
scheme (which provides a lump sum benefit on retirement and is now
closed to new members) and a defined contribution scheme. The
latter was established on 1 January 1999 for new employees, and the
group has been providing defined contribution plans to all new
employees. Since the defined benefit scheme of the Principal Plan
is a final salary lump sum scheme, its exposure to longevity risk
and interest rate risk is limited compared to a scheme that
provides annuity payments.
The Principal Plan is a funded plan with assets which are held
in trust funds separate from the group. The investment strategy of
the defined benefit scheme of the Principal Plan is to hold the
majority of assets in fixed income investments, with a smaller
portion in equities. The target asset allocation for the portfolio
is as follows: Fixed income investments 75% and Equity 25%. Each
investment manager has been assigned a benchmark applicable to
their respective asset class. The actuarial funding valuation of
the Principal Plan is conducted at least on a triennial basis in
accordance with the local practice and regulations. The actuarial
assumptions used to conduct the actuarial funding valuation of the
Principal Plan vary according to the economic conditions.
The trustee, which is a subsidiary of the Bank, assumes the
overall responsibility for the Principal Plan and the group has
established a management committee and a number of sub-committees
to broaden the governance and manage the concomitant issues.
Both the group and ServCo participate in the Principal Plan that
shares risks between the entities which are under common control of
the Group. As agreed between the group and ServCo, the net defined
benefit cost of the defined benefit scheme of the Principal Plan
shall be charged separately. Details on the defined benefit scheme
of the Principal Plan are disclosed below.
Net asset/(liability) under the defined benefit scheme of the Principal
Plan
Included within Included within
the group ServCo
----------------------------------------------------------------- -----------------------------------------------------------------
Present Present
value value
Fair of Net Fair of Net
value defined defined value defined defined
of plan benefit benefit of plan benefit benefit
assets obligations liability assets obligations liability
HK$m HK$m HK$m HK$m HK$m HK$m
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
At 1 Jan 2022 4,424 (4,915) (491) 3,945 (4,191) (246)
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
Service cost - (162) (162) - (141) (141)
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
- current service
cost - (162) (162) - (141) (141)
Net interest
income/(expense)
on the
net defined
benefit
asset/(liability) 56 (61) (5) 50 (52) (2)
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
Re-measurement
effects
recognised
in other
comprehensive
income (409) 566 157 (364) 537 173
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
- return on plan
assets (excluding
interest income) (409) - (409) (364) - (364)
------------------
- actuarial gains - 566 566 - 537 537
------------------ -------------------- -------------------- --------------------- -------------------- --------------------
Contributions 191 - 191 123 - 123
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
Benefits paid (737) 737 - (515) 515 -
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
Exchange
differences and
other movements 60 (67) (7) (69) 67 (2)
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
At 31 Dec 2022 3,585 (3,902) (317) 3,170 (3,265) (95)
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
Retirement benefit
liabilities
recognised
on the balance
sheet (317) (95)
------------------ -------------------- -------------------- --------------------- -------------------- -------------------- ---------------------
At 1 Jan 2021 4,486 (5,330) (844) 4,288 (5,001) (713)
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
Service cost - (179) (179) - (171) (171)
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
* current service cost - (179) (179) - (171) (171)
Net interest income/ (expense) on
the net defined benefit asset/(liability) 22 (26) (4) 21 (24) (3)
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
Re-measurement effects recognised
in other comprehensive income 265 118 383 250 240 490
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
* return on plan assets (excluding interest income) 265 - 265 250 - 250
--------------------------------------------------------
* actuarial gains - 118 118 - 240 240
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- --------------------
Contributions 166 - 166 149 - 149
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
Benefits paid (585) 585 - (682) 682 -
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
Exchange differences and other movements 70 (83) (13) (81) 83 2
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
At 31 Dec 2021 4,424 (4,915) (491) 3,945 (4,191) (246)
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
Retirement benefit liabilities recognised
on the balance sheet (491) (246)
-------------------------------------------------------- -------------------- -------------------- ---------------------- -------------------- -------------------- ----------------------
The group expects to make HK$180m of contributions to the
defined benefit scheme of the Principal Plan during 2023 (during
2022: HK$160m) and ServCo expects to make HK$116m contributions to
the defined benefit scheme of the Principal Plan during 2023
(during 2022: HK$136m). These expected contributions are determined
separately by the group and ServCo by reference to the actuarial
funding valuation carried out by the Principal Plan's local
actuary.
Benefits expected to be paid from the defined benefit scheme of
the Principal Plan over each of the next five years, and in
aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from the defined benefit scheme of the
Principal Plan(1)
Two to Three Four to
Within One to three years to four five years Five to
one year two years years ten years
As at 31 HK$m HK$m HK$m HK$m HK$m HK$m
December
2022
as
reported
by:
--------- ----------------------------- ------------------------------- ------------------------------- ------------------------------ ----------------------------- ---------------------------
- The
group 292 373 382 371 396 1,892
---------
- ServCo 187 299 340 271 338 1,825
--------- ----------------------------- ------------------------------- ------------------------------- ------------------------------ -----------------------------
As at 31
December
2021
as
reported
by:
--------- ----------------------------- ------------------------------- ------------------------------- ------------------------------ ----------------------------- ---------------------------
- The
group 381 467 383 362 396 1,896
---------
- ServCo 286 284 333 365 287 1,785
--------- ----------------------------- ------------------------------- ------------------------------- ------------------------------ -----------------------------
1 The duration of the defined benefit obligation is six years
for the Principal Plan under the disclosed assumptions (2021: seven
years).
Fair value of plan assets of the defined benefit scheme of the Principal
Plan by asset classes
At 31 Dec 2022 At 31 Dec 2021
---------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
Quoted Quoted
market market
price price in
in active Thereof active Thereof
Value market HSBC Value market HSBC
HK$m HK$m HK$m HK$m HK$m HK$m
------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------- --------------------------------- ---------------------------------
Fair value
of plan
assets 6,755 6,755 51 8,369 8,369 76
------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------- --------------------------------- ---------------------------------
- equities 1,581 1,581 - 1,839 1,839 -
------------
- bonds 3,725 3,725 - 4,731 4,731 -
------------
-
alternative
investments 1,398 1,398 - 1,723 1,723 -
------------
- other(1) 51 51 51 76 76 76
------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------- ---------------------------------
1 Other mainly consists of cash and cash deposits.
The Principal Plan's key actuarial financial assumptions
The group and ServCo determine the discount rate to be applied
to the defined benefit scheme's obligations in consultation with
the Principal Plan's local actuary, on the basis of the current
average yields of Hong Kong Government Bonds and Hong Kong Exchange
Fund Notes, with maturities consistent with that of the defined
benefit obligations.
The key actuarial assumptions used to calculate the group's
obligations for the defined benefit scheme of the Principal Plan
for the year, and used as the basis for measuring the expenses were
as follows:
Key actuarial assumptions for the defined
benefit scheme of the Principal Plan
--------------------------------------------------------- ----------------
Rate of pay
Discount rate increase
% p.a. % p.a.
----------------------------------------- --------------------------------------------------------- ----------------
3.50% p.a. for
2023 and 3.00%
At 31 Dec 2022 3.50 p.a. thereafter
----------------------------------------- --------------------------------------------------------- ----------------
At 31 Dec 2021 1.30 3.00
----------------------------------------- --------------------------------------------------------- ----------------
Actuarial assumption sensitivities
The discount rate and rate of pay increase are sensitive to
changes in market conditions arising during the reporting period.
The following table shows the financial impact of assumption
changes on the defined benefit scheme of the Principal Plan at year
end:
The effect of changes in key assumptions on the defined benefit scheme
of the Principal Plan
Impact on HSBC Group Hong
Kong Local Staff Retirement
Benefit Scheme obligation
------------------------------------------------------------------------------------------------------
Financial impact Financial impact
of increase of decrease
2022 2021 2022 2021
HK$m HK$m HK$m HK$m
Discount rate -
increase/decrease
of 0.25% (111) (158) 114 162
------------------ ------------------------ ------------------------ ------------------------ ------------------------
Rate of pay
increase -
increase/decrease
of 0.25% 115 160 (112) (157)
------------------ ------------------------ ------------------------ ------------------------ ------------------------
Directors' emoluments
The aggregate emoluments of the Directors of the Bank disclosed
pursuant to section 4 of the Companies (Disclosure of Information
about Benefits of Directors) Regulation were HK$111m (2021:
HK$131m). This comprises fees (which represent the aggregate
emoluments paid to or receivable by directors in respect of their
services as a director) of HK$37m (2021: HK$30m) and other
emoluments of HK$74m (2021: HK$101m) which includes contributions
to pension schemes of HK$3m (2021: HK$1m). Non-cash benefits which
are included in other emoluments mainly relate to share-based
payment awards, and the provision of housing and furnishings.
Details on loans to directors are set out in Note 32.
5 Tax
---
The Bank and its subsidiaries in Hong Kong have provided for
Hong Kong profits tax at the rate of 16.5% (2021: 16.5%) on the
profits for the year assessable in Hong Kong. Overseas branches and
subsidiaries have similarly provided for tax in the countries in
which they operate at the appropriate rates of tax in force in
2022. Deferred taxation is provided for in accordance with the
group's accounting policy in Note 1.2(m).
Tax expense
2022 2021
HK$m HK$m
------------------------------------------------------- -------------------------- ----------------------------
Current tax 14,839 12,489
------------------------------------------------------- -------------------------- ----------------------------
- Hong Kong taxation - on current year profit 5,072 5,719
-------------------------------------------------------
- Hong Kong taxation - adjustments in respect of prior
years (492) (158)
-------------------------------------------------------
- overseas taxation - on current year profit 10,692 7,151
-------------------------------------------------------
- overseas taxation - adjustments in respect of prior
years (433) (223)
------------------------------------------------------- --------------------------
Deferred tax 668 1,526
------------------------------------------------------- -------------------------- ----------------------------
- origination and reversal of temporary differences 128 1,209
-------------------------------------------------------
- effect of changes in tax rates - 9
-------------------------------------------------------
- adjustments in respect of prior years 540 308
------------------------------------------------------- --------------------------
Year ended 31 Dec 15,507 14,015
------------------------------------------------------- -------------------------- ----------------------------
Tax reconciliation
The tax charged to the income statement differs from the tax
charge that would apply if all profits had been taxed at the
applicable tax rates in the countries concerned as follows:
Reconciliation between taxation charge and accounting profit at applicable
tax rates
2022 2021
HK$m HK$m
-------------------------------------------------------- --------------------------- ----------------------------
Profit before tax 97,611 86,563
-------------------------------------------------------- --------------------------- ----------------------------
Notional tax on profit before tax, calculated at the
rates applicable to profits in the countries concerned 19,832 17,463
-------------------------------------------------------- --------------------------- ----------------------------
Effects of profits in associates and joint ventures (3,100) (3,186)
-------------------------------------------------------- --------------------------- ----------------------------
Non-taxable income and gains (3,591) (3,181)
-------------------------------------------------------- --------------------------- ----------------------------
Local taxes and overseas withholding taxes 1,848 2,695
-------------------------------------------------------- --------------------------- ----------------------------
Permanent disallowables 747 577
-------------------------------------------------------- --------------------------- ----------------------------
Others (229) (353)
-------------------------------------------------------- --------------------------- ----------------------------
Year ended 31 Dec 15,507 14,015
-------------------------------------------------------- --------------------------- ----------------------------
Movements of deferred tax assets and liabilities
Impairment
Accelerated allowance
capital Insurance Expense on financial Revaluation
allowances business provisions instruments of properties Other(2) Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Assets 176 - 1,557 2,680 - 2,106 6,519
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Liabilities (580) (10,428) (18) - (14,985) (9,677) (35,688)
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
At 1 Jan 2022 (404) (10,428) 1,539 2,680 (14,985) (7,571) (29,169)
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Exchange and
other
adjustments (15) (544) (157) (312) 215 (396) (1,209)
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Charge/(credit)
to income
statement (43) 158 (229) 1,002 759 (2,315) (668)
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Charge/(credit)
to other
comprehensive
income 6 - 10 - (812) 2,761 1,965
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
At 31 Dec 2022 (456) (10,814) 1,163 3,370 (14,823) (7,521) (29,081)
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Assets(1) 146 - 1,193 3,370 - 4,550 9,259
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Liabilities(1) (602) (10,814) (30) - (14,823) (12,071) (38,340)
---------------- ------------------------------ ----------------------------- ---------------------------- ----------------------------- ----------------------------- --------------------------- ---------------------------
Assets 102 - 1,294 2,676 - 3,088 7,160
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
Liabilities (358) (10,662) - - (14,645) (9,167) (34,832)
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
At 1 Jan 2021 (256) (10,662) 1,294 2,676 (14,645) (6,079) (27,672)
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
Exchange and
other
adjustments (6) 2 (42) (75) (1) (11) (133)
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
Charge/(credit)
to income
statement (142) 232 286 80 524 (2,506) (1,526)
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
Charge/(credit)
to other
comprehensive
income - - 1 (1) (863) 1,025 162
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
At 31 Dec 2021 (404) (10,428) 1,539 2,680 (14,985) (7,571) (29,169)
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
Assets(1) 176 - 1,557 2,680 - 2,106 6,519
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
Liabilities(1) (580) (10,428) (18) - (14,985) (9,677) (35,688)
---------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ----------------------------- ----------------------------
1 After netting off balances within countries, the balances as
disclosed in the Consolidated Financial Statements are as follows:
deferred tax assets HK$3,856m (2021: HK$3,353m); and deferred tax
liabilities HK$32,937m (2021: HK$32,522m).
2 Other included deferred tax of HK$5,847m (2021: HK$5,523m)
provided in respect of distributable reserves or post-acquisition
reserves of associates that, on distribution or sale, would attract
withholding tax.
The amount of unused tax losses for which no deferred tax asset
is recognised in the balance sheet is HK$4,537m (2021: HK$3,130m).
Of this amount, HK$1,536m (2021: HK$733m) has no expiry date and
the remaining will expire within 10 years.
Deferred tax is not recognised in respect of the group's
investments in subsidiaries and branches where remittance or other
realisation is not probable, and for those associates and interests
in joint ventures where it has been determined that no additional
tax will arise.
6 Dividends
---------
Dividends to shareholders of the parent company
2022 2021
HK$ per HK$m HK$ per HK$m
share share
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
Dividends paid on ordinary shares
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
In respect of previous year:
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
* fourth interim dividend 0.23 10,584 0.47 21,665
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
In respect of current year:
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
- first interim dividend paid 0.17 7,761 0.26 12,211
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
- second interim dividend paid 0.12 5,887 0.24 11,153
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
* third interim dividend paid 0.16 7,850 0.24 11,361
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
Total 0.68 32,082 1.21 56,390
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
Distributions on other equity
instruments 2,739 2,715
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
Dividends to shareholders 34,821 59,105
---------------------------------- ------------------------------ ---------------------------- ------------------------------- -----------------------------
On 14 February 2023, the Directors declared a fourth interim
dividend in respect of the financial year ended 31 December 2022 of
HK$0.27 per ordinary share (HK$13,500m) (2021: HK$0.23 per ordinary
share (HK$10,584m)). No liability was recorded in the financial
statements in respect of the fourth interim dividend for 2022.
Total coupons on other equity instruments
2022 2021
HK$m HK$m
----------------------------------------------------- ------------------------------ -------------------------------
US$900m Fixed rate perpetual subordinated loan
(interest
rate fixed at 6.510%) 460 456
----------------------------------------------------- ------------------------------ -------------------------------
US$900m Fixed rate perpetual subordinated loan
(interest
rate fixed at 6.030%) 426 422
----------------------------------------------------- ------------------------------ -------------------------------
US$1,000m Fixed rate perpetual subordinated loan
(interest
rate fixed at 6.090%) 477 474
----------------------------------------------------- ------------------------------ -------------------------------
US$1,200m Fixed rate perpetual subordinated loan
(interest
rate fixed at 6.172%) 580 576
----------------------------------------------------- ------------------------------ -------------------------------
US$600m Fixed rate perpetual subordinated loan
(interest
rate fixed at 5.910%) 278 275
----------------------------------------------------- ------------------------------ -------------------------------
US$1,100m Fixed rate perpetual subordinated loan
(interest
rate fixed at 6.000%) 518 512
----------------------------------------------------- ------------------------------ -------------------------------
Total 2,739 2,715
----------------------------------------------------- ------------------------------ -------------------------------
7 Trading assets
--------------
2022 2021
HK$m HK$m
-------------------------------------------------------- -------------------------- -----------------------------
Treasury and other eligible bills 132,737 132,104
-------------------------------------------------------- -------------------------- -----------------------------
Debt securities 231,601 274,508
-------------------------------------------------------- -------------------------- -----------------------------
Equity securities 264,447 299,420
-------------------------------------------------------- -------------------------- -----------------------------
Reverse repurchase agreements and other similar secured
lending(1) 59,398 63,519
-------------------------------------------------------- -------------------------- -----------------------------
Other(1,2) 11,622 7,899
-------------------------------------------------------- -------------------------- -----------------------------
At 31 Dec 699,805 777,450
-------------------------------------------------------- -------------------------- -----------------------------
1 Further product details have been included to reconcile to
Note 30 'Offsetting of financial assets and financial liabilities'
with effect from 31 December 2022.
2 'Other' includes term lending and other accounts with banks
and customers.
8 Derivatives
-----------
Notional contract amounts and fair values of derivatives by product
contract type
Notional contract Fair value - Assets Fair value - Liabilities
amount
------------------------------------------------ ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Trading Hedging Trading Hedging Total Trading Hedging Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Foreign
Exchange 19,574,143 34,877 263,215 3,226 266,441 281,468 14 281,482
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Interest
rate 32,534,469 456,741 529,327 12,416 541,743 575,665 3,326 578,991
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Equity 785,281 - 18,363 - 18,363 14,017 - 14,017
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Credit 462,180 - 2,386 - 2,386 2,708 - 2,708
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Commodity
and
other 159,242 - 3,230 - 3,230 3,939 - 3,939
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Gross
total 53,515,315 491,618 816,521 15,642 832,163 877,797 3,340 881,137
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Offset (329,392) (329,392)
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
At 31 Dec
2022 502,771 551,745
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Foreign
Exchange 17,721,333 74,732 155,110 3,401 158,511 150,034 523 150,557
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Interest
rate 30,392,783 218,885 368,523 4,321 372,844 372,342 1,406 373,748
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Equity 845,058 - 18,611 - 18,611 14,800 - 14,800
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Credit 413,340 - 3,446 - 3,446 4,437 - 4,437
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Commodity
and
other 146,377 - 1,884 - 1,884 2,378 - 2,378
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Gross
total 49,518,891 293,617 547,574 7,722 555,296 543,991 1,929 545,920
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
Offset (190,129) (190,129)
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
At 31 Dec
2021 365,167 355,791
---------- -------------------- -------------------------- ----------------------- -------------------------- ----------------------- ----------------------- -------------------------- -----------------------
The notional contract amounts of derivatives held for trading
purposes and derivatives designated in hedge accounting
relationships indicate the nominal value of transactions
outstanding at the balance sheet date. They do not represent
amounts at risk.
Use of derivatives
The group transacts derivatives for three primary purposes: to
create risk management solutions for clients, to manage the
portfolio risk arising from client business, and to manage and
hedge the group's own risks. Derivatives (except for derivatives
which are designated as effective hedging instruments) are held for
trading. Within the held for trading classification are two types
of derivative instruments: those used in sales and trading
activities, and those used for risk management purposes but which
for various reasons do not meet the qualifying criteria for hedge
accounting. The second category includes derivatives managed in
conjunction with financial instruments designated at fair value.
These activities are described more fully below.
The group's derivative activities give rise to significant open
positions in portfolios of derivatives. These positions are managed
constantly to ensure that they remain within acceptable risk
levels. When entering into derivative transactions, the group
employs the same credit risk management framework to assess and
approve potential credit exposures that it uses for traditional
lending.
Trading derivatives
Most of the group's derivative transactions relate to sales and
trading activities. Sales activities include the structuring and
marketing of derivative products to customers to enable them to
take, transfer, modify or reduce current or expected risks. Trading
activities include market-making and risk management. Market-making
entails quoting bid and offer prices to other market participants
for the purpose of generating revenues based on spread and volume.
Risk management activity is undertaken to manage the risk arising
from client transactions, with the principal purpose of retaining
client margin. Other derivatives classified as held for trading
include non-qualifying hedging derivatives.
Derivatives valued using models with unobservable inputs
Any initial gain or loss on financial instruments where the
valuation is dependent on unobservable parameters is deferred over
the life of the contract or until the instrument is redeemed,
transferred or sold or the fair value becomes observable. All
derivatives that are part of qualifying hedging relationships have
valuations based on observable market parameters.
The aggregate unobservable inception profit yet to be recognised
in the income statement is immaterial.
Hedge accounting derivatives
The group applies hedge accounting to manage interest rate and
foreign exchange risk. The group uses derivatives (principally
interest rate and currency swaps) for hedging purposes in the
management of its own asset and liability portfolios and structural
positions. This enables the group to optimise its overall costs of
accessing debt capital markets, and to mitigate the market risk
which would otherwise arise from structural imbalances in the
maturity and other profiles of its assets and liabilities. The
accounting treatment of hedging transactions varies according to
the nature of the instrument hedged and the type of hedging
transaction. Derivatives may qualify as hedges for accounting
purposes if they are fair value hedges, or cash flow hedges.
Hedged risk components
The group designates a portion of cash flows of a financial
instrument or a group of financial instruments for a specific
interest rate or foreign currency risk component in a fair value or
cash flow hedge. The designated risks and portions are either
contractually specified or otherwise separately identifiable
components of the financial instrument that are reliably
measurable. Risk-free or benchmark interest rates generally are
regarded as being both separately identifiable and reliably
measurable, except for the Ibor reform transition where the group
designates alternative benchmark rates as the hedged risk which may
not have been separately identifiable upon initial designation,
provided the group reasonably expects it will meet the requirement
within 24 months from the first designation date. The designated
risk component accounts for a significant portion of the overall
changes in fair value or cash flows of the hedged item(s).
Fair value hedges
The group enters into to fixed-for-floating-interest-rate swaps
to manage the exposure to changes in fair value due to movements in
market interest rates on certain fixed rate financial instruments
which are not measured at fair value through profit or loss,
including debt securities held and issued.
HSBC hedging instrument by hedged risk
Hedging instrument
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Carrying amount
--------------------------------------- -------------------------------------------------------------------------------------
Notional Assets Liabilities Change in
amount(1) fair value(2)
Hedged HK$m HK$m HK$m Balance sheet HK$m
risk presentation
Interest
rate 309,450 11,761 2,281 Derivatives 6,130
--------- --------------------------------------- ----------------------------------------- ------------------------------------------ ------------- -----------------------------------------
At 31 Dec 309,450 11,761 2,281 6,130
2022
--------- --------------------------------------- ----------------------------------------- --------------------------------------------------------- -----------------------------------------
Interest
rate 203,871 4,148 1,387 Derivatives 2,488
--------- ----------------------------------------- -------------------------------------------- -------------------------------------------- ------------ -------------------------------------------
At 31 Dec 203,871 4,148 1,387 2,488
2021
--------- ----------------------------------------- -------------------------------------------- ---------------------------------------------------------- -------------------------------------------
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date. They
do not represent amounts at risk.
2 Used in effectiveness testing, which uses the full fair value
change of the hedging instrument not excluding any component.
HSBC hedged item by hedged risk
Hedged item Ineffectiveness
--------------------------------------------------------------------------------------------------------------------------------- ------------------------------------
Accumulated fair value
hedge adjustments included
Carrying amount in carrying amount(2)
------------------------------------ ------------------------------------------------------------
Assets Liabilities Assets Liabilities Change Recognised
in fair in profit
value(1) and loss
HK$m HK$m HK$m HK$m HK$m HK$m Profit and
Hedged Balance sheet loss
risk presentation presentation
Net income
Financial from
investments financial
measured at instruments
fair held for
value through trading or
other managed on
Interest comprehensive a fair value
rate 257,126 (10,312) income (10,716) (237) basis
--------- ====================== ============
Loans and
advances
5,755 (435) to customers (351)
--------- ----------------- ----------------- -------------------- ---------------------- -------------- ----------------------------- ====================== ============
Debt
securities
1,161 - in issue 8
Subordinated
33,113 (2,260) liabilities(3) 4,692
--------- ----------------- ----------------- -------------------- ---------------------- -------------- ----------------------------- ====================== ============
At 31
Dec 2022 262,881 34,274 (10,747) (2,260) (6,367) (237)
--------- ----------------- ----------------- -------------------- ---------------------- -------------- ----------------------------- ---------------------- ------------
Net income
from
Financial financial
investments instruments
measured at held for
fair trading or
value through managed on
other a fair
Interest comprehensive value
rate 162,769 116 income (4,930) (77) basis
--------- ========================= ===========
Loans and
advances
6,465 (72) to customers (110)
--------- -------------- ----------------------- ---------------------- ------------------------ -------------- ----------------------------- ========================= ===========
Debt
securities
1,269 9 in issue 3
Subordinated
37,783 2,413 liabilities(3) 2,472
--------- -------------- ----------------------- ---------------------- ------------------------ -------------- ----------------------------- ========================= ===========
At 31 Dec
2021 169,234 39,052 44 2,422 (2,565) (77)
--------- -------------- ----------------------- ---------------------- ------------------------ -------------- ----------------------------- ------------------------- -----------
1 Used in effectiveness testing, which comprise an amount
attributable to the designated hedged risk that can be a risk
component.
2 The accumulated amount of fair value adjustments remaining in
the statement of financial position for hedged items that have
ceased to be adjusted for hedging gains and losses were assets of
HK$143m (2021: HK$164m) for FVOCI assets and assets of HK$1,243m
(2021: nil) for subordinated liabilities.
3 Represents Loss Absorbing Capacity ('LAC') instruments issued
by the Bank to HSBC Asia Holdings Limited, the balance of which is
included in "amounts due to Group companies".
Sources of hedge ineffectiveness may arise from basis risk
including but not limited to the discount rates used for
calculating the fair value of derivatives, hedges using instruments
with a non-zero fair value and notional and timing differences
between the hedged items and hedging instruments.
The interest rate risk of the group's fixed rate debt securities
issued is managed in a non-dynamic risk management strategy.
Cash flow hedges
The group's cash flow hedging instruments consist principally of
interest rate swaps and cross-currency swaps that are used to
manage the variability in future interest cash flows of non-trading
financial assets and liabilities, arising due to changes in market
interest rates and foreign-currency basis.
The group applies macro cash flow hedging for interest-rate risk
exposures on portfolios of replenishing current and forecasted
issuances of non-trading assets and liabilities that bear interest
at variable rates, including rolling such instruments. The amounts
and timing of future cash flows, representing both principal and
interest flows, are projected for each portfolio of financial
assets and liabilities on the basis of their contractual terms and
other relevant factors, including estimates of prepayments and
defaults. The aggregate cash flows representing both principal
balances and interest cash flows across all portfolios are used to
determine the effectiveness and ineffectiveness. Macro cash flow
hedges are considered to be dynamic hedges.
The group also hedges the variability in future cash-flows on
foreign-denominated financial assets and liabilities arising due to
changes in foreign exchange market rates with cross-currency swaps;
these are considered non-dynamic hedges.
Hedging instrument by hedged risk
Hedging instrument Hedged Ineffectiveness
item
-------------------------------------------------------------------------------------------- -------------------------------------- -------------------------------------------
Carrying
amount
------------- ------------------------------------- ------------ ------------
Change Change Recognised
Notional in fair in fair in profit
amount(1) Assets Liabilities value(2) value(3) and loss
------------
HK$m HK$m HK$m Balance HK$m HK$m Profit and
Hedged sheet loss
risk presentation HK$m presentation
--------- ------------- -------------- --------------------- ------------ ------------------------ -------------------------------------- ----------------------------- ------------
Foreign
currency 34,877 3,226 14 Derivatives 5,461 5,461 -
--------- ------------- -------------- --------------------- ------------ ------------------------ -------------------------------------- ----------------------------- ------------
Net income
from
financial
instruments
held for
trading or
managed
Interest on a fair
rate 147,291 655 1,045 Derivatives (448) (448) - value basis
--------- ------------- -------------- --------------------- ------------ ------------------------ -------------------------------------- ----------------------------- ------------
At 31 Dec
2022 182,168 3,881 1,059 5,013 5,013 -
--------- ------------- -------------- --------------------- ------------ ------------------------ -------------------------------------- ----------------------------- ------------
Net income
from
financial
instruments
held for
trading or
managed on
a fair
Foreign value
currency 74,732 3,401 523 Derivatives 6,062 6,062 - basis
--------- -------------- ------------------ --------------------- ----------- ------------------------- ----------------------------------- ----------------------------- -----------
Interest
rate 15,014 173 19 Derivatives 140 140 -
--------- -------------- ------------------ --------------------- ----------- ------------------------- ----------------------------------- ----------------------------- -----------
At 31 Dec
2021 89,746 3,574 542 6,202 6,202 -
--------- -------------- ------------------ --------------------- ----------- ------------------------- ----------------------------------- ----------------------------- -----------
1 The notional contract amounts of derivatives designated in
qualifying hedge accounting relationships indicate the nominal
value of transactions outstanding at the balance sheet date. They
do not represent amounts at risk.
2 Used in effectiveness testing; comprising the full fair value
change of the hedging instrument not excluding any component.
3 Used in effectiveness assessment; comprising amount
attributable to the designated hedged risk that can be a risk
component.
Sources of hedge ineffectiveness may arise from basis risk,
including but not limited to timing differences between the hedged
items and hedging instruments, and hedges using instruments with a
non-zero fair value.
Reconciliation of equity and analysis of other comprehensive income
by risk type
Interest Foreign currency
rate
HK$m HK$m
--------------------------------- ----------------------------------- ----------------------------------------------
Cash flow hedging reserve at 1
Jan 2022 108 45
--------------------------------- ----------------------------------- ----------------------------------------------
Fair value gains/(losses) (448) 5,461
--------------------------------- ----------------------------------- ----------------------------------------------
Fair value (gains) reclassified from the cash flow
hedge reserve to the income statement in respect
of:
---------------------------------------------------------------------- ----------------------------------------------
Hedged items that have affected (109) (6,891)
profit or loss
Income taxes 112 236
--------------------------------- ----------------------------------- ----------------------------------------------
Others (1) -
--------------------------------- ----------------------------------- ----------------------------------------------
Cash flow hedging reserve at 31 (338) (1,149)
Dec 2022
--------------------------------- ----------------------------------- ----------------------------------------------
Cash flow hedging reserve at 1 Jan
2021 35 737
---------------------------------- ---------------------------------- ----------------------------------------------
Fair value gains 140 6,062
---------------------------------- ---------------------------------- ----------------------------------------------
Fair value (gains) reclassified from the cash flow
hedge reserve to the income statement in respect
of:
---------------------------------------------------------------------- ----------------------------------------------
Hedged items that have affected (30) (6,886)
profit or loss
Income taxes (37) 132
---------------------------------- ---------------------------------- ----------------------------------------------
Others - -
---------------------------------- ---------------------------------- ----------------------------------------------
Cash flow hedging reserve at 31 108 45
Dec 2021
---------------------------------- ---------------------------------- ----------------------------------------------
Interest rate benchmark reform
At 31 December 2022, HK$157,460m (2021: HK$99,608m) of the
notional amounts of interest rate derivatives designated in hedge
accounting relationships are expected to be directly affected by
market-wide Ibors reform and in scope of HKFRS Interest Rate
Benchmark Reform Phase 1 amendments. They do not represent the
extent of the risk exposure managed by the group.
Further details regarding the impact of the market-wide
benchmarks reform is set out in the 'Top and emerging risks'
section on page 25-26 as specified as 'Audited'.
9 Financial assets designated and otherwise mandatorily measured
at fair value through profit or loss
--------------------------------------------------------------
2022 2021
------------------------------------------------------------------------------ --------------------------------------------------------------------------------
Mandatorily Mandatorily
Designated measured Designated measured
at fair at fair at fair at fair
value value Total value value Total
HK$m HK$m HK$m HK$m HK$m HK$m
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
Treasury
and other
eligible
bills - 743 743 - 241 241
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
Debt
securities 18,754 10,492 29,246 12,847 11,066 23,913
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
Equity
securities - 186,955 186,955 - 169,125 169,125
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
Reverse
repurchase
agreements
and other
similar
secured
lending(1) - 1,764 1,764 - 777 777
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
Other(1,2) - 7,743 7,743 - 8,343 8,343
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
At 31 Dec 18,754 207,697 226,451 12,847 189,552 202,399
----------- -------------------------- ------------------------ ------------------------ -------------------------- ------------------------- -------------------------
1 Further product details have been included to reconcile to
Note 30 'Offsetting of financial assets and financial liabilities'
with effect from 31 December 2022.
2 'Other' includes term lending to banks and customers, and default fund contribution.
10 Loans and advances to customers
-------------------------------
2022 2021
HK$m HK$m
-------------------------------------- -------------------------- ----------------------------
Gross loans and advances to customers 3,745,113 3,872,956
-------------------------------------- -------------------------- ----------------------------
Expected credit loss allowances (39,964) (32,017)
-------------------------------------- -------------------------- ----------------------------
At 31 Dec 3,705,149 3,840,939
-------------------------------------- -------------------------- ----------------------------
The following table provides an analysis of gross loans and
advances to customers by industry sector based on the Statistical
Classification of economic activities in the European Community
('NACE').
Analysis of gross loans and advances to customers
2022 2021
HK$m HK$m
-------------------------------- -------------------------- ----------------------------
Residential mortgages 1,177,614 1,167,487
-------------------------------- -------------------------- ----------------------------
Credit card advances 92,023 89,005
-------------------------------- -------------------------- ----------------------------
Other personal 255,747 275,819
-------------------------------- -------------------------- ----------------------------
Total personal 1,525,384 1,532,311
-------------------------------- -------------------------- ----------------------------
Real estate 570,370 635,217
-------------------------------- -------------------------- ----------------------------
Wholesale and retail trade 377,359 428,785
-------------------------------- -------------------------- ----------------------------
Manufacturing 372,060 410,033
-------------------------------- -------------------------- ----------------------------
Transportation and storage 106,172 111,388
-------------------------------- -------------------------- ----------------------------
Other 490,791 471,988
-------------------------------- -------------------------- ----------------------------
Total corporate and commercial 1,916,752 2,057,411
-------------------------------- -------------------------- ----------------------------
Non-bank financial institutions 302,977 283,234
-------------------------------- -------------------------- ----------------------------
At 31 Dec 3,745,113 3,872,956
-------------------------------- -------------------------- ----------------------------
By geography(1)
-------------------------------- -------------------------- ----------------------------
Hong Kong 2,332,813 2,447,799
-------------------------------- -------------------------- ----------------------------
Rest of Asia Pacific 1,412,300 1,425,157
-------------------------------- -------------------------- ----------------------------
1 The geographical information shown above is classified by the
location of the principal operations of the subsidiary or the
branch responsible for advancing the funds.
Finance lease receivables and hire purchase contracts
The group leases a variety of assets to third parties under
finance leases. At the end of lease terms, assets may be sold to
third parties or leased for further terms. Rentals are calculated
to recover the cost of assets less their residual value, and earn
finance income. Loans and advances to customers include receivables
under finance leases and hire purchase contracts having the
characteristics of finance leases.
Net investment in finance leases and hire purchase contracts
2022 2021
---------------------------------------------------------------------- --------------------------------------------------------------------------
Total Total
future Unearned future Unearned
minimum finance Present minimum finance Present
payments income value payments income value
HK$m HK$m HK$m HK$m HK$m HK$m
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
Amounts
receivable
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
- within
one year 2,971 (783) 2,188 4,205 (1,213) 2,992
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
- one to
two years 2,538 (724) 1,814 3,543 (1,051) 2,492
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
- two to
three
years 2,287 (677) 1,610 2,757 (912) 1,845
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
- three to
four years 2,226 (644) 1,582 2,357 (762) 1,595
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
- four to
five years 2,172 (619) 1,553 2,200 (647) 1,553
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
- after
five years 24,585 (4,729) 19,856 22,133 (3,203) 18,930
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
36,779 (8,176) 28,603 37,195 (7,788) 29,407
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
Expected
credit
loss
allowances (309) (378)
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
At 31 Dec 28,294 29,029
----------- -------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------
11 Financial investments
---------------------
2022 2021
HK$m HK$m
----------------------------------------------------- ---------------------------- -----------------------------
Financial investments measured at fair value through
other comprehensive income 1,246,652 1,549,011
----------------------------------------------------- ---------------------------- -----------------------------
- treasury and other eligible bills 612,990 653,245
-----------------------------------------------------
- debt securities 626,537 888,664
-----------------------------------------------------
- equity securities 7,125 7,102
----------------------------------------------------- ----------------------------
Debt instruments measured at amortised cost 974,709 502,564
----------------------------------------------------- ---------------------------- -----------------------------
- treasury and other eligible bills 135,216 6,900
-----------------------------------------------------
- debt securities 839,493 495,664
----------------------------------------------------- ----------------------------
At 31 Dec 2,221,361 2,051,575
----------------------------------------------------- ---------------------------- -----------------------------
Equity instruments measured at fair value through other
comprehensive income
------------------------------- ----------------------------------
2022 2021
------------------------------------------------------------------ -------------------------------------------------------------------
Dividends Dividends
Fair value recognised Fair value recognised
Type of HK$m HK$m HK$m HK$m
equity
instruments
------------- ------------------------------ ---------------------------------- ------------------------------- ----------------------------------
Business
facilitation 6,615 217 6,540 189
------------- ------------------------------ ---------------------------------- ------------------------------- ----------------------------------
Investments
required by
central
institutions 404 3 420 3
------------- ------------------------------ ---------------------------------- ------------------------------- ----------------------------------
Others 106 - 142 6
------------- ------------------------------ ---------------------------------- ------------------------------- ----------------------------------
At 31 Dec 7,125 220 7,102 198
------------- ------------------------------ ---------------------------------- ------------------------------- ----------------------------------
12 Assets pledged, assets transferred and collateral received
----------------------------------------------------------
Assets pledged
Financial assets pledged to secure liabilities
2022 2021
HK$m HK$m
--------------------------------------------- ---------------------------- -----------------------------
Treasury bills and other eligible securities 121,131 57,631
--------------------------------------------- ---------------------------- -----------------------------
Loans and advances to banks 4,372 3,211
--------------------------------------------- ---------------------------- -----------------------------
Loans and advances to customers 22,512 30,975
--------------------------------------------- ---------------------------- -----------------------------
Debt securities 149,687 134,747
--------------------------------------------- ---------------------------- -----------------------------
Equity securities 34,388 47,453
--------------------------------------------- ---------------------------- -----------------------------
Cash collateral included in other assets 129,025 75,951
--------------------------------------------- ---------------------------- -----------------------------
Assets pledged at 31 Dec 461,115 349,968
--------------------------------------------- ---------------------------- -----------------------------
Amount of liabilities secured 354,146 275,815
--------------------------------------------- ---------------------------- -----------------------------
The table above shows assets where a charge has been granted to
secure liabilities on a legal and contractual basis. These
transactions are conducted under terms that are usual and customary
to collateralised transactions including repurchase agreements,
securities lending, derivative margining, and include assets
pledged to cover short positions and to facilitate settlement
processes with clearing houses as well as swaps of equity and debt
securities. The group places both cash and non-cash collateral in
relation to derivative transactions.
Hong Kong currency notes in circulation are secured by the
deposit of funds in respect of which the Hong Kong Government
certificates of indebtedness are held.
Financial assets pledged as collateral which the counterparty
has the right to sell or repledge was HK$193,461m (2021:
HK$85,162m).
Assets transferred
Transferred financial assets not qualifying for full derecognition
and associated financial liabilities
2022 2021
-------------------------------------------------------- -------------------------------------------------------------
Carrying amount Carrying amount
of: of:
-------------------------------------------------------- -------------------------------------------------------------
Transferred Associated Transferred Associated
assets liabilities assets liabilities
HK$m HK$m HK$m HK$m
----------- -------------------------- ---------------------------- ---------------------------- -------------------------------
Repurchase
agreements 167,260 151,677 135,994 124,663
----------- -------------------------- ---------------------------- ---------------------------- -------------------------------
Securities
lending
agreements 70,036 3,644 44,171 282
----------- -------------------------- ---------------------------- ---------------------------- -------------------------------
237,296 155,321 180,165 124,945
----------- -------------------------- ---------------------------- ---------------------------- -------------------------------
The assets pledged include transfers to third parties that do
not qualify for derecognition, notably secured borrowings such as
debt securities held by counterparties as collateral under
repurchase agreements and equity securities lent under securities
lending agreements, as well as swaps of equity and debt securities.
For secured borrowings, the transferred asset collateral continues
to be recognised in full while a related liability, reflecting the
group's obligation to repurchase the assets for a fixed price at a
future date, is also recognised on the balance sheet. Where
securities are swapped, the transferred asset continues to be
recognised in full. There is no associated liability as the
non-cash collateral received is not recognised on the balance
sheet. The group is unable to use, sell or pledge the transferred
assets for the duration of the transaction, and remains exposed to
interest rate risk and credit risk on these pledged assets.
Collateral received
Assets accepted as collateral relate primarily to standard
securities borrowing, reverse repurchase agreements, swaps of
securities and derivative margining. The group is obliged to return
equivalent securities. These transactions are conducted under terms
that are usual and customary to standard securities borrowing,
reverse repurchase agreements and derivative margining.
Fair value of collateral accepted as security for assets
2022 2021
HK$m HK$m
------------------------------------------------------- ------------------------ --------------------------
Fair value of collateral permitted to sell or repledge
in the absence of default 1,337,822 1,134,296
------------------------------------------------------- ------------------------ --------------------------
Fair value of collateral actually sold or repledged 520,756 377,117
------------------------------------------------------- ------------------------ --------------------------
13 Investments in subsidiaries
---------------------------
Main subsidiaries of the Bank
The group's
interest in
issued share
capital/registered
Principal or charter
Place of incorporation activity capital
------------------------------------- ----------------------- ---------------- -------------------
Hang Seng Bank Limited Hong Kong Banking 62.14%
------------------------------------- ----------------------- ---------------- -------------------
HSBC Bank (China) Company Limited mainland China Banking 100%
------------------------------------- ----------------------- ---------------- -------------------
HSBC Bank Malaysia Berhad Malaysia Banking 100%
------------------------------------- ----------------------- ---------------- -------------------
HSBC Bank Australia Limited(1) Australia Banking 100%
------------------------------------- ----------------------- ---------------- -------------------
HSBC Bank (Taiwan) Limited(1) Taiwan Banking 100%
------------------------------------- ----------------------- ---------------- -------------------
HSBC Bank (Singapore) Limited Singapore Banking 100%
------------------------------------- ----------------------- ---------------- -------------------
Retirement
benefits and
HSBC Life (International) Limited(1) Bermuda life insurance 100%
------------------------------------- ----------------------- ---------------- -------------------
1 Held indirectly.
All of the above subsidiaries are included in the group's
consolidated financial statements. These subsidiaries make their
financial statements up to 31 December.
The principal places of business are the same as the places of
incorporation except for HSBC Life (International) Limited which
operates mainly in Hong Kong.
The proportion of voting rights held is the same as the
proportion of ownership interest held.
The main subsidiaries are regulated banking and insurance
entities in the Asia-Pacific region and, as such, are required to
maintain certain minimum levels of capital and liquid assets to
support their operations. The effect of these regulatory
requirements is to limit the extent to which the subsidiaries may
transfer funds to the Bank in the form of repayment of shareholder
loans or cash dividends.
Subsidiary with significant non-controlling interest
2022 2021
HK$m HK$m
------------------------------------------------------- ---------------------------- -------------------------------
Hang Seng Bank Limited
------------------------------------------------------- ---------------------------- -------------------------------
Proportion of ownership interests and voting rights
held by non-controlling interests 37.86% 37.86%
Profit attributable to non-controlling interests 3,835 5,272
------------------------------------------------------- ---------------------------- -------------------------------
Accumulated non-controlling interests of the subsidiary 65,237 65,431
------------------------------------------------------- ---------------------------- -------------------------------
Dividends paid to non-controlling interests 2,823 4,415
------------------------------------------------------- ---------------------------- -------------------------------
Summarised financial information (before intra-group
eliminations):
------------------------------------------------------- ---------------------------- -------------------------------
- total assets 1,893,805 1,820,185
------------------------------------------------------- ---------------------------- -------------------------------
- total liabilities 1,709,844 1,635,769
------------------------------------------------------- ---------------------------- -------------------------------
- net operating income before change in expected credit
losses and other credit impairment charges 33,864 33,265
------------------------------------------------------- ---------------------------- -------------------------------
- profit for the year 10,151 13,946
-------------------------------------------------------
- other comprehensive expense for the year, net of
tax (2,446) (357)
------------------------------------------------------- ----------------------------
- total comprehensive income for the year 7,705 13,589
------------------------------------------------------- ---------------------------- -------------------------------
14 Interests in associates and joint ventures
------------------------------------------
Associates and joint ventures
2022 2021
HK$m HK$m
-------------------- -------------------------------- ---------------------------------
Share of net assets 182,137 184,402
-------------------- -------------------------------- ---------------------------------
Goodwill 3,815 4,141
-------------------- -------------------------------- ---------------------------------
Impairment (54) (58)
-------------------- -------------------------------- ---------------------------------
At 31 Dec 185,898 188,485
-------------------- -------------------------------- ---------------------------------
As 31 December 2022, the group's interests in associates
amounted to HK$185,888m (2021: HK$188,485m).
Principal associate
The group's interest
in issued share
Place of incorporation capital
-------------------------------- ----------------------- --------------------
Bank of Communications Co., Ltd mainland China 19.03%
-------------------------------- ----------------------- --------------------
Bank of Communications Co., Ltd. is listed on recognised stock
exchanges. The fair value represents valuation based on the quoted
market price of the shares held (Level 1 in the fair value
hierarchy) and amounted to HK$63,469m at 31 December 2022
(2021: HK$66,579m).
Bank of Communications Co., Ltd ('BoCom')
The group's investment in BoCom is classified as an associate.
Significant influence in BoCom was established with consideration
of all relevant factors, including representation on BoCom's Board
of Directors and participation in a resource and experience sharing
agreement ('RES'). Under the RES, HSBC staff have been seconded to
assist in the maintenance of BoCom's financial and operating
policies. Investments in associates are recognised using the equity
method of accounting in accordance with HKAS 28, whereby the
investment is initially recognised at cost and adjusted thereafter
for the post-acquisition change in the group's share of BoCom's net
assets. An impairment test is required if there is any indication
of impairment.
Impairment testing
At 31 December 2022, the fair value of the group's investment in
BoCom had been below the carrying amount for approximately eleven
years. As a result, the group performed an impairment test on the
carrying amount, which confirmed that there was no impairment at 31
December 2022 as the recoverable amount as determined by a
value-in-use ('VIU') calculation was higher than the carrying
value.
At
------------------------------------------------
31 Dec 2022 31 Dec 2021
----------------------- -----------------------
Carrying Fair Carrying Fair
VIU value value VIU value value
HK$bn HK$bn HK$bn HK$bn HK$bn HK$bn
------ ----- -------- ------ ----- -------- ------
BoCom 183.0 182.3 63.5 193.0 184.8 66.6
------ ----- -------- ------ ----- -------- ------
The headroom, which is defined as the extent to which the VIU
exceeds the carrying value decreased by HK$7.5bn compared with 31
December 2021. The decrease in headroom was principally due to
revisions to management's best estimates of BoCom's future earnings
in the short to medium term, and the impact from BoCom's actual
performance.
In future periods, the VIU may increase or decrease depending on
the effect of changes to model inputs. The main model inputs are
described below and are based on factors observed at period-end.
The factors that could result in a change in the VIU and an
impairment include a short-term underperformance by BoCom, a change
in regulatory capital requirements or an increase in uncertainty
regarding the future performance of BoCom resulting in a downgrade
of the forecast of future asset growth or profitability. An
increase in the discount rate could also result in a reduction of
VIU and an impairment.
If the group did not have significant influence in BoCom, the
investment would be carried at fair value rather than the current
carrying value.
Basis of recoverable amount
The impairment test was performed by comparing the recoverable
amount of BoCom, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses discounted cash flow projections
based on management's best estimates of future earnings available
to ordinary shareholders prepared in accordance with HKAS 36.
Significant management judgement is required in arriving at the
best estimate.
There are two main components to the VIU calculation. The first
component is management's best estimate of BoCom's earnings.
Forecast earnings growth over the short to medium term are lower
than recent (within the last five years) historical actual growth
and reflect the uncertainty arising from the current economic
outlook. Reflecting management's intent to continue to retain its
investment, earnings beyond the short to medium term are then
extrapolated into perpetuity using a long-term growth rate to
derive a terminal value, which comprises the majority of the VIU.
The second component is the capital maintenance charge ('CMC'),
which is management's forecast of the earnings that need to be
withheld in order for BoCom to meet capital requirements over the
forecast period, meaning that CMC is deducted when arriving at
management's estimate of future earnings available to ordinary
shareholders. The principal inputs to the CMC calculation include
estimates of asset growth, the ratio of risk-weighted assets to
total assets and the expected capital requirements. An increase in
the CMC as a result of a change to these principal inputs would
reduce VIU. Additionally, management considers other qualitative
factors, to ensure that the inputs to the VIU calculation remain
appropriate.
Key assumptions in value-in-use calculation
We used a number of assumptions in our VIU calculation, in
accordance with the requirements of HKAS 36:
-- Long-term profit growth rate: 3% (2021: 3%) for periods after
2026, which does not exceed forecast GDP growth in mainland China
and is similar to forecasts by external analysts.
-- Long-term asset growth rate: 3% (2021: 3%) for periods after
2026, which is the rate that assets are expected to grow to achieve
long-term profit growth of 3%.
-- Discount rate: 10.04% (2021: 10.03%), which is based on a
capital asset pricing model ('CAPM'), using market data. The
discount rate used is within the range of 8.4% to 10.4% (2021: 8.7%
to 10.1%) indicated by the CAPM. While the CAPM range sits at the
lower end of the range adopted by selected external analysts of
8.8% to 13.5% (2021: 9.9% to 13.5%), we continue to regard the CAPM
range as the most appropriate basis for determining this
assumption.
-- Expected credit losses ('ECL') as a percentage of customer
advances: ranges from 0.99% to 1.05% (2021: 0.98% to 1.12%) in the
short to medium term, reflecting reported credit experience through
the ongoing Covid-19 pandemic in mainland China followed by an
expected reversion to recent historical levels. For periods after
2026, the ratio is 0.97% (2021: 0.97%), which is higher than
BoCom's average ECL as a percentage of customer advances in recent
years prior to the pandemic.
-- Risk-weighted assets as a percentage of total assets: ranges
from 61.0% to 64.4% (2021: 61.0% to 62.4%) in the short to medium
term, reflecting higher risk-weights in the short term followed by
an expected reversion to recent historical levels. For periods
after 2026, the ratio is 61.0% (2021: 61.0%), which is similar to
BoCom's actual results in recent years.
-- Operating income growth rate: ranges from 1.9% to 7.7% (2021:
5.1% to 6.2%) in the short to medium term, is lower than BoCom's
actual results in recent years and is similar to the forecasts
disclosed by external analysts. This reflects BoCom's most recent
actual results, global trade tensions and industry developments in
mainland China.
-- Cost-income ratio: ranges from 35.5% to 36.3% (2021: 35.5% to
36.1%) in the short to medium term. These ratios are similar to
BoCom's actual results in recent years and forecasts disclosed by
external analysts.
-- Effective tax rate ('ETR'): ranges from 4.4% to 15.0% (2021:
6.8% to 15.0%) in the short to medium term, reflecting BoCom's
actual results and an expected increase towards the long-term
assumption through the forecast period. For periods after 2026, the
rate is 15.0% (2021: 15.0%), which is higher than the recent
historical average, and aligned to the minimum tax rate as proposed
by the OECD/G20 Inclusive Framework on Base Erosion and Profit
Shifting.
-- Capital requirements: capital adequacy ratio of 12.5% (2021:
12.5%) and tier 1 capital adequacy ratio of 9.5% (2021: 9.5%),
based on BoCom's capital risk appetite and capital requirements
respectively.
The following table shows the change to each key assumption in
the VIU calculation that on its own would reduce the headroom to
nil:
* Long-term profit growth rate
* Decrease by 2 basis points
* Long-term asset growth rate
* Increase by 2 basis points
* Discount rate
* Increase by 3 basis points
* Expected credit losses as a percentage of customer
advances * Increase by
* Risk-weighted assets as a percentage of total assets * Increase by 14 basis points
* Operating income growth rate * Decrease by 3 basis points
* Cost-income ratio * Increase by 9 basis points
* Long-term effective tax rate * Increase by 26 basis points
* Capital requirements - capital adequacy ratio * Increase by 3 basis points
* Capital requirements - tier 1 capital adequacy ratio * Increase by 173 basis points
----------------------------------------------------------- -----------------------------------
The following table further illustrates the impact on VIU of
reasonably possible changes to key assumptions. This reflects the
sensitivity of the VIU to each key assumption on its own and it is
possible that more than one favourable and/or unfavourable change
may occur at the same time. The selected rates of reasonably
possible changes to key assumptions are based on external analysts'
forecasts, statutory requirements and other relevant external data
sources, which can change period to period.
Sensitivity of VIU to reasonably possible changes in key
assumptions
Favourable change Unfavourable change
--------------------------------------------------------- -------------------------------------------------------------
Increase Decrease
in VIU VIU in VIU VIU
bps HK$bn HK$bn bps HK$bn HK$bn
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
At 31 December 2022
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Long-term profit growth
rate(1) +75 28.1 211.1 -71 (21.1) 161.9
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Long-term asset growth
rate(1) -71 24.2 207.2 +75 (31.8) 151.2
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Discount rate -164 54.3 237.3 +136 (28.7) 154.3
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
2022 to 2022 to
2026: 95 2026: 120
Expected credit losses as
a percentage of customer 2027 onwards: 2027 onwards:
advances 91 14.9 197.9 104 (22.5) 160.5
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Risk-weighted assets as a
percentage of total
assets -118 0.6 183.6 +239 (17.5) 165.5
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Operating income growth
rate +44 10.5 193.5 -83 (19.3) 163.7
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Cost-income ratio -122 8.1 191.1 +174 (16.5) 166.5
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Long-term effective tax
rate -426 11.8 194.8 +1000 (27.7) 155.3
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Capital requirements -
capital
adequacy ratio - - 183.0 +191 (48.8) 134.2
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Capital requirements -
tier
1 capital adequacy ratio - - 183.0 +266 (24.8) 158.2
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
At 31 December 2021
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Long-term profit growth
rate(1) +87 33.1 226.1 -69 (20.5) 172.5
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Long-term asset growth
rate(1) -69 22.9 215.9 +87 (36.2) 156.8
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Discount rate -133 42.2 235.2 +207 (40.8) 152.2
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
2021 to 2021 to 2025:
2025: 103 121
Expected credit losses as
a percentage of customer 2026 onwards: 2026 onwards:
advances 91 11.9 204.9 105 (21.0) 172.0
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Risk-weighted assets as a
percentage of total
assets -111 2.2 195.2 +280 (15.8) 177.2
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Operating income growth
rate +37 8.2 201.2 -58 (13.6) 179.4
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Cost-income ratio -152 13.6 206.6 +174 (12.7) 180.3
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Long-term effective tax
rate -104 2.9 195.9 +1000 (27.4) 165.6
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Capital requirements -
capital
adequacy ratio - - 193.0 +325 (77.6) 115.4
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
Capital requirements -
tier
1 capital adequacy ratio - - 193.0 +364 (50.0) 143.0
-------------------------- --------------- ---------------------- ---------------- --------------- ---------------------- --------------------
1 The reasonably possible ranges of the long-term profit growth
rate and long-term asset growth rate assumptions reflect the close
relationship between these assumptions, which would result in
offsetting changes to each assumption.
Considering the interrelationship of the changes set out in the
table above, management estimates that the reasonably possible
range of VIU is HK$131.9bn to HK$223.9bn (2021: HK$148.3bn to
HK$228.4bn). The range is based on impacts set out in the table
above arising from the favourable/unfavourable change in the
earnings in the short to medium term, the long-term expected credit
losses as a percentage of customer advances and a 50bps
increase/decrease in the discount rate. All other long-term
assumptions, and the basis of the CMC have been kept unchanged when
determining the reasonably possible range of the VIU. Impairment,
if determined, would be recognised in the income statement. The
impact on group's CET1 ratio is expected to be minimal in the event
of an impairment, as the adverse impact on CET1 capital from the
impairment would be partly offset by the favourable impact from a
lower carrying value.
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December.
For the year ended 31 December 2022, the group included the
associate's results on the basis of financial statements made up
for the 12 months to 30 September 2022, but taking into account the
financial effect of significant transactions or events in the
period from 1 October 2022 to 31 December 2022.
Selected balance sheet information of BoCom
------------------------ --------------------------
At 30 Sep
2022 2021
HK$m HK$m
------------------------------------------------------- ------------------------ --------------------------
Cash and balances with central banks 891,754 960,732
------------------------------------------------------- ------------------------ --------------------------
Due from and placements with banks and other financial
institutions 778,032 771,522
------------------------------------------------------- ------------------------ --------------------------
Loans and advances to customers 7,968,993 7,751,362
------------------------------------------------------- ------------------------ --------------------------
Other financial assets 4,282,704 4,223,488
------------------------------------------------------- ------------------------ --------------------------
Other assets 438,653 375,073
------------------------------------------------------- ------------------------ --------------------------
Total assets 14,360,136 14,082,177
------------------------------------------------------- ------------------------ --------------------------
Due to and placements from banks and other financial
institutions 2,160,865 2,238,612
------------------------------------------------------- ------------------------ --------------------------
Deposits from customers 8,920,656 8,572,625
------------------------------------------------------- ------------------------ --------------------------
Other financial liabilities 1,851,657 1,779,110
------------------------------------------------------- ------------------------ --------------------------
Other liabilities 277,086 312,486
------------------------------------------------------- ------------------------ --------------------------
Total liabilities 13,210,264 12,902,833
------------------------------------------------------- ------------------------ --------------------------
Total equity 1,149,872 1,179,344
------------------------------------------------------- ------------------------ --------------------------
Reconciliation of BoCom's net assets to carrying amount in the group's
consolidated financial statements
At 30 Sep
2022 2021
HK$m HK$m
--------------------------------------------------- ---------------------------- -----------------------------
The group's share of ordinary shareholders' equity 178,526 180,738
--------------------------------------------------- ---------------------------- -----------------------------
Goodwill 3,728 4,044
--------------------------------------------------- ---------------------------- -----------------------------
Carrying amount 182,254 184,782
--------------------------------------------------- ---------------------------- -----------------------------
Selected income statement information of BoCom
For the 12 months
ended 30 Sep
2022 2021
HK$m HK$m
--------------------------------------------------- ---------------------------- -----------------------------
Net interest income 198,218 191,076
--------------------------------------------------- ---------------------------- -----------------------------
Net fee and commission income 53,667 55,735
--------------------------------------------------- ---------------------------- -----------------------------
Credit and impairment losses (76,046) (75,402)
--------------------------------------------------- ---------------------------- -----------------------------
Depreciation and amortisation (18,406) (17,851)
--------------------------------------------------- ---------------------------- -----------------------------
Tax expense (4,681) (8,119)
--------------------------------------------------- ---------------------------- -----------------------------
- profit for the year 106,352 110,370
---------------------------------------------------
- other comprehensive expense (1,921) (2,861)
--------------------------------------------------- ----------------------------
Total comprehensive income 104,431 107,509
--------------------------------------------------- ---------------------------- -----------------------------
Dividends received from BoCom 5,881 5,386
--------------------------------------------------- ---------------------------- -----------------------------
Using the latest period for which BoCom has disclosed this
information (at 30 June 2022), the group's share of associate's
contingent liabilities was HK$442,884m (2021: HK$432,259m).
15 Goodwill and intangible assets
------------------------------
Goodwill and intangible assets include goodwill arising on
business combinations, the present value of in-force long-term
insurance business, and other intangible assets.
2022 2021
HK$m HK$m
------------------------------------------------------- ------------------------ --------------------------
Goodwill 6,795 7,116
------------------------------------------------------- ------------------------ --------------------------
Present value of in-force long-term insurance business 65,537 63,765
------------------------------------------------------- ------------------------ --------------------------
Other intangible assets(1) 30,087 24,300
------------------------------------------------------- ------------------------ --------------------------
At 31 Dec 102,419 95,181
------------------------------------------------------- ------------------------ --------------------------
1 Included within other intangible assets is internally
generated software with a net carrying value of HK$27,209m (2021:
HK$21,670m). During the year, capitalisation of internally
generated software was HK$11,570m (2021: HK$10,681m), amortisation
charge was HK$5,610m (2021: HK$4,115m) and impairment charge was
HK$332m (2021: HK$184m).
The present value of in-force long-term insurance business
When calculating the present value of in-force long-term
('PVIF') insurance business, expected cash flows are projected
after adjusting for a variety of assumptions made by each insurance
operation to reflect local market conditions and management's
judgement of future trends, and uncertainty in the underlying
assumptions is reflected by applying margins (as opposed to a cost
of capital methodology). Variations in actual experience and
changes to assumptions can contribute to volatility in the results
of the insurance business.
Financial Reporting Committees of each key insurance entity meet
on a quarterly basis to review and approve PVIF assumptions. All
changes to non-economic assumptions, economic assumptions that are
not observable and model methodology must be approved by the
Financial Reporting Committee.
Movements in PVIF
2022 2021
HK$m HK$m
------------------------------------------------------- ---------------------------- -------------------------------
At 1 Jan 63,765 65,052
------------------------------------------------------- ---------------------------- -------------------------------
Acquisition 2,114
------------------------------------------------------- ---------------------------- -------------------------------
Changes in PVIF of long-term insurance business (256) (1,294)
------------------------------------------------------- ---------------------------- -------------------------------
- value of new business written during the year 9,213 7,381
-------------------------------------------------------
- expected return(1) (5,326) (5,950)
-------------------------------------------------------
- assumption changes and experience variances (see
below) (3,967) (2,873)
- other adjustments (176) 148
------------------------------------------------------- ----------------------------
Exchange differences and other (86) 7
------------------------------------------------------- ---------------------------- -------------------------------
At 31 Dec 65,537 63,765
------------------------------------------------------- ---------------------------- -------------------------------
1 'Expected return' represents the unwinding of the discount
rate and reversal of expected cash flows for the period.
Assumption changes and experience variances
Included within this line item are:
-- HK$(6,896)m (2021: HK$440m) decrease in PVIF due to rising
interest rates, which is directly offset within the valuation of
liabilities under insurance contracts.
-- HK$(564)m (2021: HK$(2,519)m), reflecting the future expected
sharing of returns with policyholders on contracts with
discretionary participation features ('DPF'), to the extent this
sharing is not already included in liabilities under insurance
contracts.
-- HK$3,493m (2021: HK$(794)m), driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for the main
life insurance operations
Economic assumptions are set in a way that is consistent with
observable market values. The valuation of PVIF is sensitive to
observed market movements. The following are the key long-term
assumptions used in the computation of PVIF for Hong Kong insurance
entities, being the main life insurance operations:
2022 2021
% %
------------------------------------ ---- ----
Weighted average risk free rate 3.85 1.40
------------------------------------ ---- ----
Weighted average risk discount rate 7.33 5.20
------------------------------------ ---- ----
Expense inflation 3.00 3.00
------------------------------------ ---- ----
Sensitivity to changes in economic assumptions
The group sets the risk discount rate applied to the PVIF
calculation by starting from a risk-free rate curve and adding
explicit allowances for risks not reflected in the best-estimate
cash flow modelling. Where the insurance operations provide options
and guarantees to policyholders, the cost of these options and
guarantees is an explicit reduction to PVIF, unless it is already
allowed for as an explicit addition to the technical provisions
required by regulators. See page 71 for further details of these
guarantees and the impact of changes in economic assumptions on our
insurance manufacturing subsidiaries.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to
non-economic assumptions, including mortality and/or morbidity,
lapse rates and expense rates. See page 72 for further details on
the impact of changes in non-economic assumptions on our insurance
manufacturing operations.
16 Property, plant and equipment
-----------------------------
2022 2021
HK$m HK$m
--------------------------------------- ------------------------ --------------------------
Owned property, plant and equipment(1) 123,491 121,072
--------------------------------------- ------------------------ --------------------------
Other right-of-use assets 7,435 8,755
--------------------------------------- ------------------------ --------------------------
At 31 Dec 130,926 129,827
--------------------------------------- ------------------------ --------------------------
1 Included leasehold land and buildings of HK$112,591m (2021:
HK$110,458m) for which the right of use are considered sufficient
to constitute control. They are therefore presented as owned
assets.
Movement in owned property, plant and equipment
-----------------------
2022 2021
------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------
Land Land
and Investment and Investment
buildings properties Equipment Total buildings properties Equipment Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Cost or valuation
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
At 1 Jan 102,367 13,465 15,747 131,579 100,791 13,167 15,266 129,224
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Exchange and other
adjustments (797) 8 (679) (1,468) (67) 16 (112) (163)
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Additions 3,183 324 2,253 5,760 667 2 2,049 2,718
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Disposals (55) - (680) (735) (58) - (1,456) (1,514)
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Transfers - - - - - - - -
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Elimination of
accumulated
depreciation on
revalued
land and
buildings (5,105) - - (5,105) (4,633) - - (4,633)
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Surplus/(deficit)
on
revaluation 4,683 (133) - 4,550 5,643 277 - 5,920
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Reclassifications (2,849) 2,535 - (314) 24 3 - 27
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
At 31 Dec 101,427 16,199 16,641 134,267 102,367 13,465 15,747 131,579
Accumulated
depreciation
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
At 1 Jan 87 - 10,420 10,507 90 - 10,387 10,477
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Exchange and other
adjustments (42) - (533) (575) 30 - (46) (16)
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Charge for the
year 5,151 - 1,418 6,569 4,645 - 1,374 6,019
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Disposals - - (620) (620) (45) - (1,295) (1,340)
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Transfers - - - - - - - -
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Elimination of
accumulated
depreciation on
revalued
land and
buildings (5,105) - - (5,105) (4,633) - - (4,633)
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
At 31 Dec 91 - 10,685 10,776 87 - 10,420 10,507
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
Net book value at
31 Dec 101,336 16,199 5,956 123,491 102,280 13,465 5,327 121,072
------------------ ---------------------- ------------------------ ----------------------- ---------------------- ----------------------- ------------------------- ----------------------- -----------------------
The carrying amount of land and buildings, had they been stated
at cost less accumulated depreciation, would have been as
follows:
2022 2021
HK$m HK$m
----------------------------------- ----------------------- ------------------------
Cost less accumulated depreciation 18,584 17,121
----------------------------------- ----------------------- ------------------------
Valuation of land and buildings and investment properties
The group's land and buildings and investment properties were
revalued as at 31 December 2022. The basis of valuation for land
and buildings and investment properties was open market value. The
resultant values are Level 3 in the fair value hierarchy. The fair
values for land and buildings are determined by using a direct
comparison approach which values the properties in their respective
existing states and uses, assuming sale with immediate vacant
possession and by making reference to comparable sales evidence.
The valuations take into account the characteristics of the
properties (unobservable inputs) which include the location, size,
shape, view, floor level, year of completion and other factors
collectively. The premium or discount applied to the
characteristics of the properties is within minus 20% and plus 20%.
In determining the open market value of investment properties,
expected future cash flows have been discounted to their present
values. The net book value of 'Land and buildings' includes
HK$6,839m (2021: HK$6,854m) in respect of properties which were
valued using the depreciated replacement cost method.
Valuation of land and buildings and investment properties in
Hong Kong, Macau and mainland China were largely carried out by
Cushman & Wakefield Limited, who have recent experience in the
location and type of properties and who are members of the Hong
Kong Institute of Surveyors. This represents 93% by value of the
group's properties subject to valuation. Other properties were
valued by different independent professionally qualified
valuers.
17 Prepayments, accrued income and other assets
--------------------------------------------
2022 2021
HK$m HK$m
--------------------------------------------------------- ---------------------------- -----------------------------
Prepayments and accrued income 32,604 24,986
--------------------------------------------------------- ---------------------------- -----------------------------
Bullion 50,253 52,986
--------------------------------------------------------- ---------------------------- -----------------------------
Acceptances and endorsements 57,118 55,789
--------------------------------------------------------- ---------------------------- -----------------------------
Reinsurers' share of liabilities under insurance
contracts
(Note 3) 32,151 27,366
--------------------------------------------------------- ---------------------------- -----------------------------
Current tax assets 2,144 2,674
--------------------------------------------------------- ---------------------------- -----------------------------
Settlement accounts 38,621 24,577
--------------------------------------------------------- ---------------------------- -----------------------------
Cash collateral and margin receivables 94,850 44,177
--------------------------------------------------------- ---------------------------- -----------------------------
Other assets 47,578 37,188
--------------------------------------------------------- ---------------------------- -----------------------------
At 31 Dec 355,319 269,743
--------------------------------------------------------- ---------------------------- -----------------------------
Prepayments, accrued income and other assets included
HK$267,972m (2021: HK$180,757m) of financial assets, the majority
of which were measured at amortised cost.
18 Customer accounts
-----------------
Customer accounts by country/territory
2022 2021
HK$m HK$m
--------------- -------------------------- ----------------------------
Hong Kong 4,229,531 4,284,719
--------------- -------------------------- ----------------------------
Singapore 479,241 448,976
--------------- -------------------------- ----------------------------
Mainland China 443,954 462,187
--------------- -------------------------- ----------------------------
Australia 222,222 220,233
--------------- -------------------------- ----------------------------
India 176,466 191,116
--------------- -------------------------- ----------------------------
Malaysia 124,792 128,673
--------------- -------------------------- ----------------------------
Taiwan 119,400 120,744
--------------- -------------------------- ----------------------------
Indonesia 45,529 46,938
--------------- -------------------------- ----------------------------
Other 272,574 273,596
--------------- -------------------------- ----------------------------
At 31 Dec 6,113,709 6,177,182
--------------- -------------------------- ----------------------------
19 Trading liabilities
-------------------
2022 2021
HK$m HK$m
Net short positions in securities 80,564 85,627
----------------------------------------------------- ------------------------------ -------------------------------
Repurchase agreements and other similar secured
lending(1) 61,404 6,703
----------------------------------------------------- ------------------------------ -------------------------------
Customer accounts 485 393
----------------------------------------------------- ------------------------------ -------------------------------
At 31 Dec 142,453 92,723
----------------------------------------------------- ------------------------------ -------------------------------
1 Further product details have been included to reconcile to
Note 30 'Offsetting of financial assets and financial liabilities'
with effect from 31 December 2022.
20 Financial liabilities designated at fair value
----------------------------------------------
2022 2021
HK$m HK$m
---------------------------------------------------- ----------------------- ------------------------
Deposits by banks and customer accounts 89,258 59,611
---------------------------------------------------- ----------------------- ------------------------
Debt securities in issue 45,454 43,928
---------------------------------------------------- ----------------------- ------------------------
Liabilities to customers under investment contracts 33,031 35,426
---------------------------------------------------- ----------------------- ------------------------
At 31 Dec 167,743 138,965
---------------------------------------------------- ----------------------- ------------------------
The carrying amount of financial liabilities designated at fair
value was HK$370m lower than the contractual amount at maturity
(2021: HK$1,385m lower). The cumulative gain in fair value
attributable to changes in credit risk was HK$138m (2021: HK$62m
loss).
21 Debt securities in issue
------------------------
2022 2021
HK$m HK$m
------------------------------------------------------- ----------------------- ------------------------
Bonds and medium-term notes 78,537 79,852
------------------------------------------------------- ----------------------- ------------------------
Other debt securities in issue 67,826 31,440
------------------------------------------------------- ----------------------- ------------------------
Total debt securities in issue 146,363 111,292
------------------------------------------------------- ----------------------- ------------------------
Included within:
------------------------------------------------------- ----------------------- ------------------------
- financial liabilities designated at fair value (Note
20) (45,454) (43,928)
------------------------------------------------------- ----------------------- ------------------------
At 31 Dec 100,909 67,364
------------------------------------------------------- ----------------------- ------------------------
22 Accruals and deferred income, other liabilities and provisions
--------------------------------------------------------------
2022 2021
HK$m HK$m
--------------------------------------------------- --------------------- -----------------------
Accruals and deferred income 32,779 23,020
--------------------------------------------------- --------------------- -----------------------
Acceptances and endorsements 57,210 55,824
--------------------------------------------------- --------------------- -----------------------
Settlement accounts 33,536 26,158
--------------------------------------------------- --------------------- -----------------------
Cash collateral and margin payables 58,919 53,541
--------------------------------------------------- --------------------- -----------------------
Share-based payment liability to HSBC Holdings plc 1,564 1,431
--------------------------------------------------- --------------------- -----------------------
Lease liabilities 7,850 9,165
--------------------------------------------------- --------------------- -----------------------
Other liabilities(1) 44,957 48,668
--------------------------------------------------- --------------------- -----------------------
Provisions for liabilities and charges 1,911 1,399
--------------------------------------------------- --------------------- -----------------------
At 31 Dec 238,726 219,206
--------------------------------------------------- --------------------- -----------------------
1 Mainly includes marginal deposit on letter of credit and
credit card settlement account.
Accruals and deferred income, other liabilities and provisions
included HK$227,840m (2021: HK$209,441m) of financial liabilities
which were measured at amortised cost.
Movement in provisions
--------------------------- ------------------------- -------------------------
Restructuring
costs Other Total
Provisions (excluding contractual HK$m HK$m HK$m
commitments)
----------------------------------- --------------------------- ------------------------- -------------------------
At 31 Dec 2021 148 466 614
----------------------------------- --------------------------- ------------------------- -------------------------
Additions 468 243 711
----------------------------------- --------------------------- ------------------------- -------------------------
Amounts utilised (307) (174) (481)
----------------------------------- --------------------------- ------------------------- -------------------------
Unused amounts reversed (35) (84) (119)
----------------------------------- --------------------------- ------------------------- -------------------------
Exchange and other movements (3) 30 27
----------------------------------- --------------------------- ------------------------- -------------------------
At 31 Dec 2022 271 481 752
----------------------------------- --------------------------- ------------------------- -------------------------
Contractual commitments(1)
----------------------------------- --------------------------- ------------------------- -------------------------
At 31 Dec 2021 785
----------------------------------- --------------------------- ------------------------- -------------------------
Net change in expected credit loss
provision and
other movements 374
----------------------------------- --------------------------- ------------------------- -------------------------
At 31 Dec 2022 1,159
----------------------------------- --------------------------- ------------------------- -------------------------
Total Provisions at 31 Dec 2022 1,911
----------------------------------- --------------------------- ------------------------- -------------------------
At 31 Dec 2020 116 419 535
-------------------------------- -------------------------- ---------------------------- --------------------------
Additions 357 333 690
-------------------------------- -------------------------- ---------------------------- --------------------------
Amounts utilised (309) (258) (567)
-------------------------------- -------------------------- ---------------------------- --------------------------
Unused amounts reversed (59) (24) (83)
-------------------------------- -------------------------- ---------------------------- --------------------------
Exchange and other movements 43 (4) 39
-------------------------------- -------------------------- ---------------------------- --------------------------
At 31 Dec 2021 148 466 614
-------------------------------- -------------------------- ---------------------------- --------------------------
Contractual commitments
-------------------------------- -------------------------- ---------------------------- --------------------------
At 31 Dec 2020 1,257
-------------------------------- -------------------------- ---------------------------- --------------------------
Net change in expected credit
loss provision and
other movements (472)
-------------------------------- -------------------------- ---------------------------- --------------------------
At 31 Dec 2021 785
-------------------------------- -------------------------- ---------------------------- --------------------------
Total Provisions at 31 Dec 2021 1,399
-------------------------------- -------------------------- ---------------------------- --------------------------
1 Contractual commitments include provisions for contingent
liabilities measured under HKFRS 9 'Financial Instruments' in
respect of financial guarantees and expected credit loss provisions
in relation to off-balance sheet guarantees and commitments.
23 Subordinated liabilities
------------------------
Subordinated liabilities to third parties measured at amortised
cost consist of undated primary capital notes and other capital
loan having an original term to maturity of five years or more.
Subordinated liabilities to Group entities are not included in the
table below.
2022 2021
HK$m HK$m
-------- ----------------------------------------- -------------------------------- -------------------------------
Undated floating rate primary capital
US$400m notes 3,119 3,119
-------- ----------------------------------------- -------------------------------- -------------------------------
Fixed rate (5.050%) subordinated bonds
due 2027,
MYR500m callable from 2022(1) - 935
-------- ----------------------------------------- -------------------------------- -------------------------------
At 31
Dec 3,119 4,054
--------------------------------------------------- -------------------------------- -------------------------------
1 These securities were called in 2022.
24 Share capital
-------------
2022 2021
HK$m HK$m
-------------------------------- -------------------------- ----------------------------
Paid up share capital in HK$ 123,949 116,103
-------------------------------- -------------------------- ----------------------------
Paid up share capital in US$(1) 56,232 56,232
-------------------------------- -------------------------- ----------------------------
At 31 Dec 180,181 172,335
-------------------------------- -------------------------- ----------------------------
Ordinary shares issued and fully paid
2022 2021
HK$m Number HK$m Number
------- -------------------------------------------- --------------------------------- ------------------------------------------------ ------------------------------------------------
At 1
Jan 172,335 46,440,991,798 172,335 46,440,991,798
------- -------------------------------------------- --------------------------------- ------------------------------------------------ ------------------------------------------------
Shares 7,846 3,138,400,000 - -
issued
during
the
year
------- -------------------------------------------- --------------------------------- ------------------------------------------------ ------------------------------------------------
At 31 180,181 49,579,391,798 172,335 46,440,991,798
Dec
------- -------------------------------------------- --------------------------------- ------------------------------------------------ ------------------------------------------------
1 Paid up share capital in US$ represents preference shares
which were redeemed or bought back via payment out of distributable
profits and for which the amount was transferred from retained
earnings to share capital in accordance with the requirements of
the Companies Ordinance.
3,138.4m new ordinary shares were issued during 2022 (2021: nil)
at an issue price of HK$2.5 each for general corporate purposes and
to further strengthen the capital base. The holder of the ordinary
shares is entitled to receive dividends as declared from time to
time, rank equally with regard to the Bank's residual assets and
are entitled to one vote per share at shareholder meetings of the
Bank.
25 Other equity instruments
------------------------
Other equity instruments comprise additional tier 1 capital
instruments in issue which are accounted for as equity.
2022 2021
HK$m HK$m
------------------------------------------------------ ---------------------------- --------------------------------
US$1,000m Fixed rate perpetual subordinated loan,
callable
from Mar 2025(1) 7,834 7,834
------------------------------------------------------ ---------------------------- --------------------------------
US$900m Fixed rate perpetual subordinated loan,
callable
from Sep 2026(2) 7,063 7,063
------------------------------------------------------ ---------------------------- --------------------------------
US$700m Fixed rate perpetual subordinated loan,
callable
from Mar 2025(3) 5,467 5,467
------------------------------------------------------ ---------------------------- --------------------------------
US$500m Fixed rate perpetual subordinated loan,
callable
from Mar 2025(3) 3,905 3,905
------------------------------------------------------ ---------------------------- --------------------------------
US$600m Fixed rate perpetual subordinated loan,
callable
from May 2027(4) 4,685 4,685
------------------------------------------------------ ---------------------------- --------------------------------
US$900m Fixed rate perpetual subordinated loan,
callable
from Sep 2024(5) 7,044 7,044
------------------------------------------------------ ---------------------------- --------------------------------
US$1,100m Fixed rate perpetual subordinated loan,
callable
from Jun 2024(6) 8,617 8,617
------------------------------------------------------ ---------------------------- --------------------------------
US$1,000m Floating rate perpetual subordinated loan, 7,771 -
callable from May 2027(7)
------------------------------------------------------ ---------------------------- --------------------------------
At 31 Dec 52,386 44,615
------------------------------------------------------ ---------------------------- --------------------------------
1 Interest rate fixed at 6.090%.
2 Interest rate fixed at 6.510%.
3 Interest rate fixed at 6.172%.
4 Interest rate fixed at 5.910%.
5 Interest rate fixed at 6.030%.
6 Interest rate fixed at 6.000%.
7 Interest rate at compounded SOFR plus 5.090%.
The additional tier 1 capital instruments are perpetual
subordinated loans on which coupon payments may be cancelled at the
sole discretion of the Bank. The subordinated loans will be written
down at the point of non-viability on the occurrence of a trigger
event as defined in the Banking (Capital) Rules. They rank higher
than ordinary shares in the event of a wind-up.
26 Maturity analysis of assets and liabilities
-------------------------------------------
The following tables provide an analysis of consolidated total
assets and liabilities by residual contractual maturity at the
balance sheet date. These balances are included in the maturity
analysis as follows:
-- Trading assets and liabilities (including trading derivatives
but excluding reverse repos, repos and debt securities in issue)
are included in the 'Due not more than 1 month' time bucket,
because trading balances are typically held for short periods of
time.
-- Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the 'Due over 5 years'
time bucket. Undated or perpetual instruments are classified based
on the contractual notice period which the counterparty of the
instrument is entitled to give. Where there is no contractual
notice period, undated or perpetual contracts are included in the
'Due over 5 years' time bucket.
-- Non-financial assets and liabilities with no contractual
maturity are included in the 'Due over 5 years' time bucket.
-- Liabilities under insurance contracts are irrespective of
contractual maturity included in the 'Due over 5 years' time bucket
in the maturity table provided below. An analysis of the expected
maturity of liabilities under insurance contracts based on
undiscounted cash flows is provided on page 71. Liabilities under
investment contracts are classified in accordance with their
contractual maturity. Undated investment contracts are included in
the 'Due over 5 years' time bucket, however, such contracts are
subject to surrender and transfer options by the policyholders.
Maturity analysis of assets and liabilities
Due Due
Due Due Due Due over over
over over over over 1 year 2 years
1 month 3 months 6 months 9 months but but
Due but but but but not not
not not not not not more more
more more more more more than than Due
than than than than than 2 5 over
1 month 3 months 6 months 9 months 1 year years years 5 years Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Financial
assets
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Cash and
balances
at central
banks 232,740 - - - - - - - 232,740
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Items in the
course
of collection
from
other banks 28,557 - - - - - - - 28,557
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Hong Kong
Government
certificates
of
indebtedness 341,354 - - - - - - - 341,354
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Trading assets 691,744 1,764 3,089 - 163 3,045 - - 699,805
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Derivatives 495,785 691 205 142 474 1,840 2,556 1,078 502,771
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Financial
assets
designated
and otherwise
mandatorily
measured at
fair value
through profit
or
loss 6,334 662 2,334 809 306 3,644 13,130 199,232 226,451
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Reverse
repurchase
agreements -
non-trading 585,333 256,887 54,039 7,679 7,172 13,402 3,464 - 927,976
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Loans and
advances
to banks 321,807 99,229 39,705 6,132 13,686 16,445 22,020 - 519,024
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Loans and
advances
to customers 567,455 370,175 301,012 151,506 146,803 441,860 632,986 1,093,352 3,705,149
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Financial
investments 313,122 516,476 135,636 71,865 73,234 217,677 391,288 502,063 2,221,361
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Amounts due
from Group
companies 101,287 4,652 4,356 716 2,696 10,236 7,729 19 131,691
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Accrued income
and
other
financial
assets 193,219 40,300 21,535 3,864 4,077 796 675 3,506 267,972
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Financial
assets
at 31 Dec 2022 3,878,737 1,290,836 561,911 242,713 248,611 708,945 1,073,848 1,799,250 9,804,851
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Non-financial
assets - - - - - - - 519,301 519,301
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Total assets at
31
Dec 2022 3,878,737 1,290,836 561,911 242,713 248,611 708,945 1,073,848 2,318,551 10,324,152
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Financial
liabilities
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Hong Kong
currency
notes in
circulation 341,354 - - - - - - - 341,354
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Items in the
course
of
transmission
to
other banks 33,073 - - - - - - - 33,073
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Repurchase
agreements
- non-trading 335,467 2,173 2,557 - 5,027 5,869 - - 351,093
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Deposits by
banks 193,147 1,249 3,513 811 176 12 - - 198,908
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Customer
accounts 5,050,054 540,611 304,705 81,349 85,465 22,028 29,490 7 6,113,709
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Trading
liabilities 142,432 21 - - - - - - 142,453
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Derivatives 550,741 4 62 60 157 175 489 57 551,745
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Financial
liabilities
designated at
fair
value 35,661 35,229 12,142 10,593 8,957 20,585 11,436 33,140 167,743
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Debt securities
in
issue 13,723 13,266 24,251 13,388 1,054 9,674 22,382 3,171 100,909
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Amounts due to
Group
companies 129,641 12,841 808 272 842 70,332 49,935 133,987 398,658
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Accruals and
other
financial
liabilities 138,862 41,883 22,569 5,525 7,098 5,566 5,228 1,109 227,840
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Subordinated
liabilities(1) - - - - - - - 3,119 3,119
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Total financial
liabilities
at 31 Dec 2022 6,964,155 647,277 370,607 111,998 108,776 134,241 118,960 174,590 8,630,604
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Non-financial
liabilities - - - - - - - 752,285 752,285
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Total
liabilities
at 31 Dec 2022 6,964,155 647,277 370,607 111,998 108,776 134,241 118,960 926,875 9,382,889
--------------- -------------------- -------------------------------- ------------------- ------------------- ------------------- ------------------- -------------------- ---------------------- ------------------------------------
Maturity analysis of assets and liabilities (continued)
Due Due Due Due Due Due
over over over over over over
1 month 3 months 6 months 9 months 1 year 2 years
Due but but but but but but
not not not not not not not
more more more more more more more Due
than1 than than than than than than over
month 3 months 6 months 9 months 1 year 2 years 5 years 5 years Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Financial
assets
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Cash and
balances at
central banks 276,857 - - - - - - - 276,857
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Items in the
course
of collection
from
other banks 21,632 - - - - - - - 21,632
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Hong Kong
Government
certificates
of
indebtedness 332,044 - - - - - - - 332,044
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Trading assets 768,376 7,082 208 431 - 815 538 - 777,450
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Derivatives 361,447 1,079 466 769 131 441 713 121 365,167
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Financial
assets
designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss 5,880 172 1,636 884 1,561 3,781 11,244 177,241 202,399
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Reverse
repurchase
agreements -
non-trading 528,832 223,041 34,435 5,081 1,865 9,384 1,137 - 803,775
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Loans and
advances
to banks 277,060 80,547 20,767 7,667 7,532 20,248 17,908 518 432,247
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Loans and
advances
to customers 605,216 402,921 312,336 177,577 171,989 410,594 731,226 1,029,080 3,840,939
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Financial
investments 247,163 405,109 187,038 107,329 118,029 232,350 307,753 446,804 2,051,575
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Amounts due
from Group
companies 84,688 1,302 1,189 2,227 2,441 6,138 5,857 17 103,859
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Accrued income
and
other
financial
assets 119,499 31,449 19,062 3,708 2,034 805 750 3,450 180,757
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Financial
assets at
31 Dec 2021 3,628,694 1,152,702 577,137 305,673 305,582 684,556 1,077,126 1,657,231 9,388,701
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Non-financial
assets - - - - - - - 514,692 514,692
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Total assets at
31
Dec 2021 3,628,694 1,152,702 577,137 305,673 305,582 684,556 1,077,126 2,171,923 9,903,393
Financial
liabilities
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Hong Kong
currency
notes in
circulation 332,044 - - - - - - - 332,044
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Items in the
course
of
transmission
to
other banks 25,701 - - - - - - - 25,701
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Repurchase
agreements
- non-trading 231,463 4,713 368 - 1,104 7,570 2,904 7,252 255,374
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Deposits by
banks 269,405 2,140 6,780 1,019 526 440 - - 280,310
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Customer
accounts 5,722,470 272,462 88,483 34,813 32,417 11,792 14,741 4 6,177,182
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Trading
liabilities 92,723 - - - - - - - 92,723
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Derivatives 354,567 304 74 212 79 241 274 40 355,791
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Financial
liabilities
designated at
fair
value 32,086 21,849 11,059 4,967 5,574 8,789 18,899 35,742 138,965
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Debt securities
in
issue 4,304 5,509 17,363 12,374 3,963 9,320 12,324 2,207 67,364
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Amounts due to
Group
companies 114,388 17,504 1,401 222 223 21,699 66,205 134,534 356,176
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Accruals and
other
financial
liabilities 124,346 40,286 24,070 5,135 3,820 4,802 5,197 1,785 209,441
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Subordinated
liabilities(1) - - - - - - - 4,054 4,054
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Financial
liabilities
at 31 Dec 2021 7,303,497 364,767 149,598 58,742 47,706 64,653 120,544 185,618 8,295,125
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Non-financial
liabilities - - - - - - - 684,757 684,757
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
Total
liabilities at
31 Dec 2021 7,303,497 364,767 149,598 58,742 47,706 64,653 120,544 870,375 8,979,882
--------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- --------------------- ----------------
1 The maturity for subordinated liabilities is based on the
earliest date on which the group is required to pay, i.e. the
callable date.
27 Analysis of cash flows payable under financial liabilities by remaining
contractual maturities
-----------------------------------------------------------------------
Due over
1 month
Due not but not Due between Due between
more than more than 3 and 1 and Due after
1 month 3 months 12 months 5 years 5 years Total
HK$m HK$m HK$m HK$m HK$m HK$m
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
At 31 Dec 2022
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Hong Kong
currency notes
in
circulation 341,354 - - - - 341,354
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Items in the
course of
transmission
to other banks 33,073 - - - - 33,073
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Repurchase
agreements -
non-trading 335,951 2,194 7,708 5,877 - 351,730
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Deposits by
banks 193,748 1,250 4,542 14 - 199,554
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Customer
accounts 5,053,321 552,623 481,006 55,739 16 6,142,705
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Trading
liabilities 142,453 - - - - 142,453
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Derivatives 551,094 67 253 603 60 552,077
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Financial
liabilities
designated
at fair value 37,062 36,310 32,404 33,198 33,170 172,144
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Debt securities
in issue 13,917 14,305 40,630 34,698 3,400 106,950
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Amounts due to
Group
companies 129,728 14,509 11,396 155,038 170,299 480,970
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Other financial
liabilities 135,664 38,584 31,237 9,967 1,128 216,580
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Subordinated
liabilities - 36 108 577 4,561 5,282
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
6,967,365 659,878 609,284 295,711 212,634 8,744,872
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Loan and other
credit-related
commitments 3,191,864 - - - - 3,191,864
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Financial
guarantees 41,991 - - - - 41,991
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
10,201,220 659,878 609,284 295,711 212,634 11,978,727
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Proportion of
cash flows
payable
in period 85% 6% 5% 2% 2%
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
At 31 Dec 2021
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Hong Kong
currency notes
in
circulation 332,044 - - - - 332,044
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Items in the
course of
transmission
to other banks 25,701 - - - - 25,701
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Repurchase
agreements -
non-trading 231,531 4,714 1,517 10,530 7,289 255,581
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Deposits by
banks 269,681 2,140 8,341 451 - 280,613
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Customer
accounts 5,723,441 273,282 157,735 28,638 4 6,183,100
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Trading
liabilities 92,723 - - - - 92,723
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Derivatives 354,584 416 384 621 40 356,045
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Financial
liabilities
designated
at fair value 33,288 22,323 21,903 28,536 35,768 141,818
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Debt securities
in issue 4,336 5,667 34,629 22,632 2,370 69,634
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Amounts due to
Group
companies 113,944 19,523 7,301 108,035 147,000 395,803
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Other financial
liabilities 123,460 39,607 31,486 10,630 1,854 207,037
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Subordinated
liabilities - 15 44 236 4,207 4,502
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
7,304,733 367,687 263,340 210,309 198,532 8,344,601
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Loan and other
credit-related
commitments 2,945,560 - - - - 2,945,560
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Financial
guarantees 41,843 - - - - 41,843
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
10,292,136 367,687 263,340 210,309 198,532 11,332,004
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
Proportion of
cash flows
payable
in period 91% 3% 2% 2% 2%
--------------- -------------------------- -------------------------- -------------------------- -------------------------- ---------------------------- -----------------------
The balances in the above tables incorporate all cash flows
relating to principal and future coupon payments on an undiscounted
basis. Trading liabilities and trading derivatives have been
included in the 'On demand' time bucket as they are typically held
for short periods of time. The undiscounted cash flows payable
under hedging derivative liabilities are classified according to
their contractual maturity. Investment contract liabilities have
been included in financial liabilities designated at fair value,
whereby the policyholders have the options to surrender or transfer
at any time, and are reported in the 'Due after 5 years' time
bucket. A maturity analysis prepared on the basis of the earliest
possible contractual repayment date (assuming that all surrender
and transfer options are exercised) would result in all investment
contracts being presented as falling due within one year or less.
The undiscounted cash flows potentially payable under loan
commitments and financial guarantee contracts are classified on the
basis of the earliest date they can be called. Cash flows payable
in respect of customer accounts are primarily contractually
repayable on demand or at short notice.
28 Contingent liabilities, contractual commitments and guarantees
--------------------------------------------------------------
2022 2021
HK$m HK$m
------------------------------------------------------- ---------------------------- -----------------------------
Guarantees and contingent liabilities:
------------------------------------------------------- ---------------------------- -----------------------------
- financial guarantees(1) 41,991 41,843
------------------------------------------------------- ---------------------------- -----------------------------
- performance and other guarantees(2) 354,794 335,849
------------------------------------------------------- ---------------------------- -----------------------------
- other contingent liabilities 1,222 1,751
------------------------------------------------------- ---------------------------- -----------------------------
At 31 Dec 398,007 379,443
------------------------------------------------------- ---------------------------- -----------------------------
Commitments(3) :
------------------------------------------------------- ---------------------------- -----------------------------
- documentary credits and short-term trade-related
transactions 26,324 32,284
------------------------------------------------------- ---------------------------- -----------------------------
- forward asset purchases and forward forward deposits
placed 48,560 40,745
------------------------------------------------------- ---------------------------- -----------------------------
- undrawn formal standby facilities, credit lines and
other commitments to lend 3,116,980 2,872,531
------------------------------------------------------- ---------------------------- -----------------------------
At 31 Dec 3,191,864 2,945,560
------------------------------------------------------- ---------------------------- -----------------------------
1 Financial guarantees are contracts that require the issuer to
make specified payments to reimburse the holder for a loss incurred
because a specified debtor fails to make payment when due in
accordance with the original or modified terms of a debt
instrument.
2 Performance and other guarantees include re-insurance letters
of credit related to particular transactions, trade-related letters
of credit issued without provision for the issuing entity to retain
title to the underlying shipment, performance bonds, bid bonds,
standby letters of credit and other transaction-related
guarantees.
3 Includes HK$1,892,401m of commitments at 31 December 2022
(2021: HK$1,826,335m) to which the impairment requirements in HKFRS
9 are applied where the group has become party to an irrevocable
commitment.
The above table discloses the nominal principal amounts of
commitments (excluding other commitments as disclosed in Note 29),
guarantees and other contingent liabilities, which represent the
amounts at risk should contracts be fully drawn upon and clients
default. The amount of the commitments shown above reflects, where
relevant, the expected level of take-up of pre-approved facilities.
As a significant proportion of guarantees and commitments are
expected to expire without being drawn upon, the total of the
nominal principal amounts is not representative of future liquidity
requirements.
It also reflects the group's maximum exposure under a large
number of individual guarantee undertakings. The risks and
exposures from guarantees are captured and managed in accordance
with HSBC's overall credit risk management policies and procedures.
Guarantees are subject to an annual credit review process.
Other contingent liabilities at 31 December 2022 included
amounts in relation to legal and regulatory matters as set out in
Note 38.
29 Other commitments
-----------------
Capital commitments
At 31 December 2022, capital commitments, mainly related to the
commitment for purchase of properties, were HK$3,834m
(2021: HK$4,826m).
30 Offsetting of financial assets and financial liabilities
--------------------------------------------------------
Financial assets and financial liabilities are offset and the
net amount is 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 realise the asset and settle
the liability simultaneously ('the offset criteria').
The 'Amounts not set off in the balance sheet' include
transactions where:
-- the counterparty has an offsetting exposure with the group
and a master netting or similar arrangement is in place with a
right to set off only in the event of default, insolvency or
bankruptcy, or the offset criteria are otherwise not satisfied;
and
-- cash and non-cash collateral (debt securities and equities)
has been received/pledged for derivatives and reverse
repurchase/repurchase, stock borrowing/lending and similar
agreements to cover net exposure in the event of default or other
predetermined events.
The effect of over-collateralisation is excluded.
'Amounts not subject to enforceable master netting agreements'
include contracts executed in jurisdictions where the rights of set
off may not be upheld under the local bankruptcy laws, and
transactions where a legal opinion evidencing enforceability of the
right of offset may not have been sought, or may have been unable
to obtain.
For risk management purposes, the net amounts of loans and
advances to customers are subject to limits, which are monitored
and the relevant customer agreements are subject to review and
updated, as necessary, to ensure that the legal right to set off
remains appropriate.
Offsetting of financial assets and financial liabilities
Amounts subject to enforceable
netting arrangements
Amounts not offset
in the
balance sheet
Net Amounts
amounts Financial not subject
reported instruments, to enforceable
in the including netting Balance
Gross Amounts balance non-cash Cash Net arrange- sheet
amounts offset sheet collateral collateral amount ments(1) total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
At 31 Dec 2022
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Financial assets(2)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Derivatives 795,828 (329,392) 466,436 (397,121) (39,022) 30,293 36,335 502,771
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Reverse repos, stock borrowing
and similar agreements
classified as:(4)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
- trading assets 57,505 - 57,505 (57,273) (227) 5 4,177 61,682
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 55,221 - 55,221 (54,994) (227) - 4,177 59,398
------------------------------------------------------------
* amounts due from Group companies 2,284 - 2,284 (2,279) - 5 - 2,284
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------
* reverse repurchase agreements - non-trading 932,272 (29,470) 902,802 (901,205) (1,597) - 63,031 965,833
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 891,131 (26,186) 864,945 (863,840) (1,105) - 63,031 927,976
------------------------------------------------------------
* amounts due from Group companies 41,141 (3,284) 37,857 (37,365) (492) - - 37,857
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 1,764 - 1,764 (1,764) - - - 1,764
1,787,369 (358,862) 1,428,507 (1,357,363) (40,846) 30,298 103,543 1,532,050
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Financial liabilities(3)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Derivatives 849,582 (329,392) 520,190 (390,421) (70,825) 58,944 31,555 551,745
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Repos, stock lending and
similar agreements classified
as:(4)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
- trading liabilities 61,437 - 61,437 (61,436) (1) - 22 61,459
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 61,382 - 61,382 (61,381) (1) - 22 61,404
------------------------------------------------------------
* amounts due to Group companies 55 - 55 (55) - - - 55
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------
* repurchase agreements - non-trading 403,019 (29,470) 373,549 (373,126) (352) 71 37,064 410,613
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 340,215 (26,186) 314,029 (313,747) (256) 26 37,064 351,093
------------------------------------------------------------
* amounts due to Group companies 62,804 (3,284) 59,520 (59,379) (96) 45 - 59,520
1,314,038 (358,862) 955,176 (824,983) (71,178) 59,015 68,641 1,023,817
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
At 31 Dec 2021
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Financial assets(2)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Derivatives 524,603 (190,129) 334,474 (279,958) (36,005) 18,511 30,693 365,167
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Reverse repos, stock borrowing
and similar agreements
classified as:(4)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
- trading assets 60,417 (79) 60,338 (59,771) (552) 15 7,393 67,731
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 56,205 (79) 56,126 (55,561) (552) 13 7,393 63,519
------------------------------------------------------------
* amounts due from Group companies 4,212 - 4,212 (4,210) - 2 - 4,212
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------
* reverse repurchase agreements - non-trading 806,403 (71,333) 735,071 (733,647) (197) 1,228 82,854 817,925
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 776,145 (55,224) 720,921 (720,662) (197) 62 82,854 803,775
------------------------------------------------------------
* amounts due from Group companies 30,258 (16,109) 14,149 (12,985) - 1,166 - 14,149
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 777 - 777 (777) - - - 777
1,392,200 (261,541) 1,130,659 (1,074,153) (36,754) 19,752 120,940 1,251,599
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- -----------------------
Financial liabilities(3)
------------------------------------------------------------ ----------------------- ----------------------- ------------------------
Derivatives 516,525 (190,129) 326,396 (277,624) (27,837) 20,935 29,395 355,791
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
Repos, stock lending and
similar agreements classified
as:(4)
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
- trading liabilities 6,807 (79) 6,728 (6,721) - 7 - 6,728
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 6,782 (79) 6,703 (6,697) - 6 - 6,703
------------------------------------------------------------
* amounts due to Group companies 25 - 25 (24) - 1 - 25
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------
* repurchase agreements - non-trading 323,559 (71,333) 252,226 (251,802) (3) 421 68,664 320,890
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- ----------------------- ------------------ -------------------- ------------------------ ---------------------
* third party 241,934 (55,224) 186,710 (186,338) (3) 369 68,664 255,374
------------------------------------------------------------
* amounts due to Group companies 81,625 (16,109) 65,516 (65,464) - 52 - 65,516
846,891 (261,541) 585,350 (536,147) (27,840) 21,363 98,059 683,409
------------------------------------------------------------ -------------------------------- ------------------- ----------------------- -----------------------
1 These exposures continue to be secured by financial
collateral, but the group may not have sought or been able to
obtain a legal opinion evidencing enforceability of the offsetting
right.
2 Include balances due from Group companies of HK$208,343m (2021: HK$167,054m).
3 Include balances due to Group companies of HK$213,726m (2021: HK$217,572m).
4 Further product details have been included with effect from 31 December 2022.
31 Segmental analysis
------------------
The Executive Committee ('EXCO') is considered the Chief
Operating Decision Maker ('CODM') for the purpose of identifying
the group's operating segments. Operating segment results are
assessed by the CODM on the basis of performance measured in
accordance with HKFRSs. Although the CODM reviews information on a
number of bases, business performance is assessed and capital
resources are allocated by operating segments, and the segmental
analysis is presented based on reportable segments as assessed
under HKFRS 8 'Operating Segments'.
Our operations are closely integrated and, accordingly, the
presentation of data includes internal allocations of certain items
of income and expenses. These allocations include the costs of
certain support services and global functions to the extent that
they can be meaningfully attributed to operational business lines
and geographical regions. While such allocations have been made on
a systematic and consistent basis, they necessarily involve a
degree of subjectivity. Costs which are not allocated to other
operating segments are included in the 'Corporate Centre'.
Where relevant, income and expense amounts presented include the
results of inter-segment funding along with inter-company and
inter-business line transactions. All such transactions are
undertaken on arm's length terms. The intra-group elimination items
for the operating segments are presented in the Corporate
Centre.
Our global businesses and reportable segments
The group provides a comprehensive range of banking and related
financial services to our customers in our global businesses:
Wealth and Personal Banking ('WPB'), Commercial Banking ('CMB') and
Global Banking and Markets ('GBM'). The products and services
offered to customers are organised by these global businesses.
-- WPB provides a full range of retail banking and wealth
products to our customers from personal banking to ultra high net
worth individuals. Typically, customer offerings include retail
banking products, such as current and savings accounts, mortgages
and personal loans, credit cards, debit cards and local and
international payment services. We also provide wealth management
services, including insurance and investment products, global asset
management services, investment management and Private Wealth
Solutions for customers with more sophisticated and international
requirements.
-- CMB offers a broad range of products and services to serve
the needs of our commercial customers, including small and
medium-sized enterprises, mid-market enterprises and corporates.
These include credit and lending, international trade and
receivables finance, treasury management and liquidity solutions
(payments and cash management and commercial cards), commercial
insurance and investments. CMB also offers its customers access to
products and services offered by other global businesses, such as
GBM, which include foreign exchange products, raising capital on
debt and equity markets and advisory services.
-- GBM comprises of two separate reportable segments: Global
Banking ('GB') and Markets and Securities Services ('MSS'). GB
provides tailored financial solutions to major government,
corporate and institutional clients and private investors
worldwide. The client-focused business lines deliver a full range
of banking capabilities including financing, advisory and
transaction services. MSS provides services in credit, rates,
foreign exchange, equities, money markets and securities services,
and principal investment activities.
-- Corporate Centre includes strategic investments such as our
investment in BoCom, Central Treasury revenue, and costs which are
not allocated to global businesses, mainly in relation to
investments in technology.
-- Other (GBM-other) mainly comprises other business activities
which are jointly managed by GB and MSS.
Performance by reportable segments is presented in the
'Financial Review' on page 16 as specified as 'Audited'.
Information by geographical region
Rest of Intra-segment
Hong Kong Asia-Pacific elimination Total
HK$m HK$m HK$m HK$m
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
For the year ended
31 Dec 2022
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Total operating
income 184,065 90,536 905 275,506
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Profit before tax 43,153 54,458 - 97,611
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
At 31 Dec 2022
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Total assets 7,450,156 3,898,235 (1,024,239) 10,324,152
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Total liabilities 6,954,421 3,452,707 (1,024,239) 9,382,889
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Credit commitments
and contingent
liabilities
(contract amounts) 1,894,046 1,695,824 - 3,589,870
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
For the year ended
31 Dec 2021
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Total operating
income 174,859 79,067 780 254,706
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Profit before tax 41,043 45,520 - 86,563
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
At 31 Dec 2021
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Total assets 7,035,497 3,696,064 (828,168) 9,903,393
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Total liabilities 6,559,271 3,248,779 (828,168) 8,979,882
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Credit commitments
and contingent
liabilities
(contract amounts) 1,792,675 1,532,328 - 3,325,003
------------------- ---------------------------- ---------------------------- -------------------------------- ----------------------------
Information by country/territory
Revenue(1) Non-current assets(2)
----------------------------------------------------------- -----------------------------------------------------------
For the year ended At 31 Dec
31 Dec
2022 2021 2022 2021
HK$m HK$m HK$m HK$m
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Hong Kong 121,031 106,966 138,717 134,400
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Mainland
China 21,965 19,381 196,844 196,477
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Australia 7,815 7,351 1,691 1,837
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
India 11,708 10,614 2,426 2,534
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Indonesia 3,188 3,242 3,289 3,584
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Malaysia 5,790 5,174 1,981 2,022
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Singapore 15,473 10,671 3,453 2,933
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Taiwan 3,823 3,124 2,473 2,802
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Other 14,899 12,135 2,833 3,140
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
Total 205,692 178,658 353,707 349,729
---------- ---------------------------- ----------------------------- ---------------------------- -----------------------------
1 Revenue (defined as 'Net operating income before change in
expected credit losses and other impairment charges') is
attributable to countries based on the location of the principal
operations of the branch, subsidiary, associate or joint
venture.
2 Non-current assets consist of property, plant and equipment,
goodwill, other intangible assets, interests in associates and
joint ventures and certain other assets.
2
32 Related party transactions
--------------------------
The group's related parties include the parent, fellow
subsidiaries, associates, joint ventures, post-employment benefit
plans for the group's employees, Key Management Personnel ('KMP')
as defined by HKAS 24, close family members of KMP and entities
that are controlled or jointly controlled by KMP or their close
family members.
Particulars of transactions with related parties are set out
below.
(a) Inter-company
The group is wholly owned by HSBC Asia Holdings Limited, which
in turn is a wholly-owned subsidiary of HSBC Holdings plc
(incorporated in England).
The group entered into transactions with its fellow subsidiaries
in the normal course of business, including the acceptance and
placement of interbank deposits, correspondent banking transactions
and off-balance sheet transactions. The Bank also acted as agent
for the distribution of retail investment funds for fellow
subsidiaries and paid professional fees for services provided by
fellow subsidiaries.
The group shared the costs of certain IT projects and also used
certain processing services of fellow subsidiaries. These costs are
reported under 'General and administrative expenses - other
administrative expenses in the income statement.
The aggregate amount of income and expenses arising from these
transactions during the year and the balances of amounts due to and
from the relevant parties at the year end were as follows:
2022 2021
---------------------------------------------------------------------------------------------------------
Immediate Ultimate Immediate Ultimate
holding holding Fellow holding holding Fellow
company company subsidiaries company company subsidiaries
HK$m HK$m HK$m HK$m HK$m HK$m
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Income and expenses
for the year
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Interest income - 50 1,276 - - 220
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Interest expense(1) 8,364 33 1,216 6,773 (651) (286)
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Fee income - 17 2,246 - - 2,538
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Fee expense - 8 1,739 - 1 1,428
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Net income/(losses)
from
financial
instruments
held for trading or
managed
on a fair value
basis 1,106 - (374) - 1 (19)
------------------------------- ------------------------------- -------------------------------
Net insurance
premium
income - - 238 - - 249
------------------------------- ------------------------------- -------------------------------
Other operating
income - 120 1,913 - 129 1,770
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Net insurance claims
and benefits paid
and
movement in
liabilities
to policyholders - - (204) - - (179)
General and
administrative
expenses(2) - 67 49,891 - (141) 47,842
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
At 31 Dec
--------------------------------- ---------------------------------- ---------------------------------- -------------------------------
Assets 24 3,403 305,321 9 1,147 260,256
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
- trading
assets(3,7) - 33 2,300 - 22 4,232
- derivative assets - 2 168,200 - 989 147,704
- other
assets(3,6,8) 24 3,368 134,821 9 136 108,320
--------------------------------- ---------------------------------- ----------------------------------
Liabilities 256,031 3,804 293,021 223,565 1,069 283,630
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
- trading
liabilities(3,9) - - 55 - - 25
- financial
liabilities
designated at fair
value(3,4) 183,760 - 6 175,655 - 7
- derivative
liabilities - 3,677 150,474 - 18 152,013
- other
liabilities(3,6,10) 1,842 64 142,486 1,388 980 131,585
- subordinated
liabilities(3,5,6) 70,429 63 - 46,522 71 -
--------------------------------- ---------------------------------- ----------------------------------
Guarantees - - 23,289 - - 22,815
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Commitments - - 1,405 - - 2,076
--------------------------------- ---------------------------------- ---------------------------------- ------------------------------- ------------------------------- -------------------------------
1 The amount includes interest expenses on debt instruments
issued by the group for funding purposes that are designated under
the fair value option to reduce an accounting mismatch, and
interest expenses/(income) on derivatives managed in conjunction
with those debt instruments.
2 This includes reimbursement of amount from ultimate holding
company in accordance to the billing arrangement of the Group.
3 These balances are presented under 'Amounts due from/to Group
companies' in the consolidated balance sheet.
4 The balance at 31 December 2022 included capital and
loss-absorbing capacity ('LAC') instruments of HK$183,760m (2021:
HK$175,655m). During the year, there were repayment of HK$21,512m
(2021: HK$4,437) and issuance of HK$51,579m (2021: HK$54,460m). The
carrying amount of financial liabilities designated at fair value
was HK$13,593m lower than the contractual amount at maturity (2021:
HK$7,211m higher). The cumulative gain in fair value attributable
to changes in credit risk was HK$3,456m (2021: HK$1,815m loss). The
balances are under Level 2.
5 The balance at 31 December 2022 included subordinated
liabilities of HK$70,429m to meet TLAC requirements (2021:
HK$46,522m). During the year, there were no repayment (2021:
HK$19,665m) and issuance of HK$29,435m (2021: HK$3,304m).
6 The fair value hierarchy of assets and liabilities at
amortised cost are under level 2 and the fair value has no material
difference with carrying value.
7 Includes trading reverse repo agreements and other similar
secured lending of HK$2,284m (2021: HK$4,212m).
8 Includes non-trading reverse repo agreements and other similar
secured lending of HK$37,857m (2021: HK$14,149m).
9 Includes trading repurchase agreements and other similar
secured lending of HK$55m (2021: HK$25m).
10 Includes non-trading repurchase agreements and other similar
secured lending of HK$59,520m (2021: HK$65,516m).
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as for comparable transactions with third-party
counterparties.
(b) Share option and share award schemes
The group participates in various share option and share plans
operated by HSBC whereby share options or shares of HSBC are
granted to employees of the group. The group recognises an expense
in respect of these share options and share awards. The cost borne
by the ultimate holding company in respect of share options is
treated as a capital contribution and is recorded within 'Other
reserves'. In respect of share awards, the group recognises a
liability to the ultimate holding company over the vesting period.
This liability is measured at the fair value of the shares at each
reporting date, with changes since the award dates adjusted through
the capital contribution account within 'Other reserves'. The
balances of the capital contribution and the liability at 31
December 2022 amounted to HK$3,299m and HK$1,564m respectively
(2021: HK$3,436m and HK$1,431m respectively).
(c) Post-employment benefit plans
At 31 December 2022, HK$7.7bn (2021: HK$9.2bn) of the group's
post-employment plan assets were under management by group
companies, earning management fees of HK$59m in 2022 (2021:
HK$65m). At 31 December 2022, the group's post-employment benefit
plans had placed deposits of HK$735m (2021: HK$783m) with its
banking subsidiaries, earning interest payable to the schemes of
HK$1.1m (2021: HK$0.5m). The above outstanding balances arose from
the ordinary course of business and on substantially the same
terms, including interest rates and security, as comparable
transactions with third-party counterparties.
(d) Associates and joint ventures
The group provides certain banking and financial services to
associates and joint ventures, including loans, overdrafts,
interest and non-interest bearing deposits and current accounts.
Details of interests in associates and joint ventures are set out
in Note 14.
The disclosure of the year-end balance and the highest amounts
outstanding during the year is considered to be the most meaningful
information to represent the amount of transactions and outstanding
balances during the year.
Transactions and balances during the year with associates and joint
ventures
2022 2021
------------------------------------------------------------------ ------------------------------------------------------------------
Highest Highest
balance Balance balance Balance
during at during at
the year 31 December the year 31 December
HK$m HK$m HK$m HK$m
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
Amounts due from
associates -
unsubordinated(1) 57,513 51,402 35,643 32,632
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
Amounts due to
associates(1) 19,862 10,099 27,237 8,786
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
Amounts due to
joint ventures 40 16 - -
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
Fair value of
derivative assets
with
associates(2) 9,394 6,559 7,299 3,644
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
Fair value of
derivative
liabilities
with
associates(2) 33,673 28,440 5,424 4,450
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
Guarantees and
Commitments(2) 1,769 287 4,897 1,654
------------------ -------------------------------- -------------------------------- -------------------------------- --------------------------------
1 Comparatives have been re-presented to incorporate certain balances previously not included.
2 With effect from 31 Dec 2022, derivatives assets and
liabilities and guarantees provided are included in the disclosure.
Comparatives have been re-presented to conform to the current
year's presentation.
The above outstanding balances arose in the ordinary course of
business and on substantially the same terms, including interest
rates and security, as comparable transactions with third--party
counterparties.
(e) Key Management Personnel
Key Management Personnel are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of the Bank and the group. It includes
members of the Board of Directors and Executive Committee of the
Bank and the Board of Directors and Group Executive Committee
members of HSBC Holdings plc.
Compensation of Key Management Personnel
2022 2021
HK$m HK$m
--------------------------------------- ---------------------------------- ----------------------------------
Salaries and other short-term benefits 320 314
--------------------------------------- ---------------------------------- ----------------------------------
Post employment benefits 12 9
--------------------------------------- ---------------------------------- ----------------------------------
Termination benefits 2 5
--------------------------------------- ---------------------------------- ----------------------------------
Share-based payments 87 123
--------------------------------------- ---------------------------------- ----------------------------------
Total 421 451
--------------------------------------- ---------------------------------- ----------------------------------
Transactions, arrangements and agreements involving Key Management
Personnel
2022 2021
HK$m HK$m
------------------------------------------ ---------------------------- -----------------------------
During the year
------------------------------------------ ---------------------------- -----------------------------
Highest average assets(1) 97,366 107,317
------------------------------------------ ---------------------------- -----------------------------
Highest average liabilities(1) 81,323 71,516
------------------------------------------ ---------------------------- -----------------------------
Contribution to group's profit before tax 1,858 1,510
------------------------------------------ ---------------------------- -----------------------------
At the year end
------------------------------------------ ---------------------------- -----------------------------
Guarantees 12,007 13,263
------------------------------------------ ---------------------------- -----------------------------
Commitments 12,186 13,624
------------------------------------------ ---------------------------- -----------------------------
1 The disclosure of the highest average balance during the year
is considered the most meaningful information to represent
transactions during the year.
Transactions, arrangements and agreements are entered into by
the group with companies that may be controlled by Key Management
Personnel of the group and their immediate relatives. These
transactions are primarily loans and deposits, and were entered
into in the ordinary course of business and on substantially the
same terms, including interest rates and security, as comparable
transactions with persons or companies of a similar standing or,
where applicable, with other employees. The transactions did not
involve more than the normal risk of repayment or present other
unfavourable features. Change in expected credit losses recognised
for the year, and expected credit loss allowances against balances
outstanding at the end of the year, in respect of Key Management
Personnel were insignificant (2021: insignificant).
On 8 October 2019, the group acted as Joint Global Co-ordinator
and Underwriter on aggregated EUR4.25bn and GBP800m Senior Note
issuances for CK Hutchison Group Telecom Finance S.A. in 6
tranches, with tenors of 4 to 15 years and coupon rates of 0.375%
to 2.625%. CK Hutchison Group Telecom Finance S.A. is a
wholly-owned subsidiary of an associated body corporate (CK
Hutchison Holdings Limited) of Mr Victor Li, a non-executive
Director of the Bank.
(f) Loans to directors
Directors are defined as the Directors of the Bank, its ultimate
holding company, HSBC Holdings plc and intermediate holding
companies. Loans to directors also include loans to companies that
are controlled by, and entities that are connected with these
directors. Particulars of loans to directors disclosed pursuant to
section 17 of the Companies (Disclosure of Information about
Benefits of Directors) Regulation are as follows:
Aggregate amount Maximum aggregate
outstanding at amount outstanding
31 Dec during the year
2022 2021 2022 2021
HK$m HK$m HK$m HK$m
------------- -------------------------------- --------------------------------- -------------------------------- ---------------------------------
By the Bank 1,483 3,755 2,769 3,967
------------- -------------------------------- --------------------------------- -------------------------------- ---------------------------------
By
subsidiaries 12 13 14 14
------------- -------------------------------- --------------------------------- -------------------------------- ---------------------------------
1,495 3,768 2,783 3,981
------------- -------------------------------- --------------------------------- -------------------------------- ---------------------------------
These amounts include principal and interest, and the maximum
liability that may be incurred under guarantees.
33 Fair values of financial instruments carried at fair value
----------------------------------------------------------
Control framework
Fair values are subject to a control framework designed to
ensure that they are either determined, or validated, by a function
independent of the risk taker.
Where fair values are determined by reference to externally
quoted prices or observable pricing inputs to models, independent
price determination or validation is utilised. For inactive
markets, the group sources alternative market information, with
greater weight given to information that is considered to be more
relevant and reliable. Examples of the factors considered are price
observability, instrument comparability, consistency of data
sources, underlying data accuracy and timing of prices.
Fair value of investment funds are sourced from the underlying
fund managers which are based upon an assessment of the underlying
investees' financial positions, results, risk profile and
prospects.
For fair values determined using valuation models, the control
framework includes development or validation by independent support
functions of the model logic, inputs, model outputs and
adjustments. Valuation models are subject to a process of due
diligence before becoming operational and are calibrated against
external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss
analysis process and are disaggregated into high-level categories
including portfolio changes, market movements and other fair value
adjustments.
The majority of financial instruments measured at fair value are
in MSS and Insurance. The group's fair value governance structure
comprises its Finance function and Valuation Committees. Finance is
responsible for establishing procedures governing valuation and
ensuring fair values are in compliance with accounting standards.
The fair values are reviewed by the group's relevant Valuation
Committees, which consist of independent support functions and
consider all material subjective valuations. Within MSS and
Insurance, these Committees are overseen by the Group's Valuation
Committee Review Group and the Group Insurance Valuation and
Impairment Committee respectively.
Financial liabilities measured at fair value
In certain circumstances, the group records its own debt in
issue at fair value, based on quoted prices in an active market for
the specific instrument. When quoted market prices are unavailable,
the own debt in issue is valued using valuation techniques, the
inputs for which are either based on quoted prices in an inactive
market for the instrument or are estimated by comparison with
quoted prices in an active market for similar instruments. In both
cases, the fair value includes the effect of applying the credit
spread which is appropriate to the group's liabilities. The change
in fair value of issued debt securities attributable to the group's
own credit spread is computed as follows: for each security at each
reporting date, an externally verifiable price is obtained or a
price is derived using credit spreads for similar securities for
the same issuer. Then, using discounted cash flow, each security is
valued using a Libor-based discount curve. The difference in the
valuations is attributable to the group's own credit spread. This
methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instruments are
included within 'Financial liabilities designated at fair value'
and are measured at fair value. The credit spread applied to these
instruments is derived from the spreads at which the group issues
structured notes.
Gains and losses arising from changes in the credit spread of
liabilities issued by the group, recorded in other comprehensive
income, reverse over the contractual life of the debt, provided
that the debt is not repaid at a premium or a discount.
Fair value hierarchy
Fair values of financial assets and liabilities are determined
according to the following hierarchy:
-- Level 1 - valuation technique using quoted market price.
These are financial instruments with quoted prices for identical
instruments in active markets that the group can access at the
measurement date.
-- Level 2 - valuation technique using observable inputs. These
are financial instruments 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 - valuation technique with significant unobservable
inputs. These are financial instruments valued using valuation
techniques where one or more significant inputs are
unobservable.
--
Financial instruments carried at fair value and bases of valuation
Fair Value Hierarchy
Level Level Level Third-party Inter-
1 2 3 total company(2) Total
HK$m HK$m HK$m HK$m HK$m HK$m
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
At 31 Dec 2022
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Assets
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Trading
assets(1) 486,547 203,975 9,283 699,805 - 699,805
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Derivatives 1,018 330,250 3,301 334,569 168,202 502,771
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Financial
assets
designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss 100,917 34,139 91,395 226,451 - 226,451
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Financial
investments 962,261 280,083 4,308 1,246,652 - 1,246,652
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Liabilities
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Trading
liabilities(1) 74,201 68,246 6 142,453 - 142,453
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Derivatives 2,425 393,457 1,712 397,594 154,151 551,745
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Financial
liabilities
designated
at fair
value(1) - 133,009 34,734 167,743 - 167,743
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
At 31 Dec 2021
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Assets
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Trading
assets(1) 537,816 236,388 3,246 777,450 - 777,450
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Derivatives 440 212,740 3,294 216,474 148,693 365,167
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Financial
assets
designated
and otherwise
mandatorily
measured at
fair value
through profit
or loss 93,544 34,203 74,652 202,399 - 202,399
Financial
investments 1,153,521 391,816 3,674 1,549,011 - 1,549,011
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Liabilities
Trading
liabilities(1) 73,647 19,076 - 92,723 - 92,723
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Derivatives 963 200,667 2,130 203,760 152,031 355,791
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
Financial
liabilities
designated
at fair
value(1) - 118,516 20,449 138,965 - 138,965
----------------------------- ------------------------ ------------------------------ ------------------------ ----------------------------- ------------------------
1 Amounts with HSBC Group entities are not reflected here.
2 Derivatives balances with HSBC Group entities are largely under 'Level 2'.
Transfers between Level 1 and Level 2 fair values
Assets Liabilities
--------------------------------------------------------------------------------
Designated
and otherwise
mandatorily
measured Designated
Financial Trading at fair Trading at fair
investments assets value Derivatives liabilities value Derivatives
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
At 31 Dec
2022
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
Transfers
from
Level
1 to
Level 2 29,781 23,312 5,825 - 132 - -
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
Transfers
from
Level
2 to
Level 1 60,104 36,025 9,493 - 1,443 - -
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
At 31 Dec
2021
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
Transfers
from
Level
1 to
Level 2 57,471 29,852 1,970 802 1,012 - 1,652
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
Transfers
from
Level
2 to
Level 1 36,073 20,948 1,679 - 3,452 - -
--------------------- -------------------- ----------------------- -------------------------- ------------------------ -------------------------- --------------------------
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarter. Transfers into and out of
levels of the fair value hierarchy are primarily attributable to
changes in observability of valuation inputs and price
transparency.
Fair value adjustments
We adopt the use of fair value adjustments when we take into
consideration additional factors not incorporated within the
valuation model that would otherwise be considered by a market
participant. We classify fair value adjustments as either
'risk-related' or 'model-related'. The majority of these
adjustments relate to MSS. Movements in the level of fair value
adjustments do not necessarily result in the recognition of profits
or losses within the income statement. For example, as models are
enhanced, fair value adjustments may no longer be required.
Similarly, fair value adjustments will decrease when the related
positions are unwound, but this may not result in profit or
loss.
Bid-offer
HKFRS 13 requires use of the price within the bid-offer spread
that is most representative of fair value. Valuation models will
typically generate mid-market values. The bid-offer adjustment
reflects the extent to which bid-offer costs would be incurred if
substantially all residual net portfolio market risks were closed
using available hedging instruments or by disposing of, or
unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from
market data, and/or the choice of model itself may be more
subjective. In these circumstances, an adjustment may be necessary
to reflect the likelihood that market participants would adopt more
conservative values for uncertain parameters and/or model
assumptions, than those used in the group's valuation model.
Credit valuation adjustment ('CVA') and debit valuation
adjustment ('DVA')
The CVA is an adjustment to the valuation of over-the-counter
('OTC') derivative contracts to reflect the possibility that the
counterparty may default and the group may not receive the full
market value of the transactions.
The DVA is an adjustment to the valuation of OTC derivative
contracts to reflect the possibility that the group may default,
and that the group may not pay the full market value of the
transactions.
The group calculates a separate CVA and DVA for each legal
entity, and for each counterparty to which the entity has exposure.
With the exception of central clearing parties, all third-party
counterparties are included in the CVA and DVA calculations, and
these adjustments are not netted across group entities.
The group calculates the CVA by applying the probability of
default ('PD') of the counterparty, conditional on the non-default
of the group, to the group's expected positive exposure to the
counterparty and multiplying the result by the loss expected in the
event of default. Conversely, the group calculates the DVA by
applying the PD of the group, conditional on the non-default of the
counterparty, to the expected positive exposure of the counterparty
to the group and multiplying the result by the loss expected in the
event of default. Both calculations are performed over the life of
the potential exposure.
For most products the group uses a simulation methodology, which
incorporates a range of potential exposures over the life of the
portfolio, to calculate the expected positive exposure to a
counterparty. The simulation methodology includes credit mitigants,
such as counterparty netting agreements and collateral agreements
with the counterparty.
The methodologies do not, in general, account for 'wrong-way
risk'. Wrong-way risk is an adverse correlation between the
counterparty's probability of default and the mark-to-market value
of the underlying transaction. The risk can either be general,
perhaps related to the currency of the issuer country, or specific
to the transaction concerned. When there is significant wrong-way
risk, a trade-specific approach is applied to reflect this risk in
the valuation.
Funding fair value adjustment ('FFVA')
The FFVA is calculated by applying future market funding spreads
to the expected future funding exposure of any uncollateralised
component of the OTC derivative portfolio. The expected future
funding exposure is calculated by a simulation methodology, where
available and is adjusted for events that may terminate the
exposure, such as the default of the group or the counterparty. The
FFVA and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a
simplifying set of assumptions that do not capture all current and
future material market characteristics. In these circumstances,
model limitation adjustments are adopted.
Inception profit (Day 1 profit or loss reserves)
Inception profit adjustments are adopted when the fair value
estimated by a valuation model is based on one or more significant
unobservable inputs.
Fair value valuation bases
Financial instruments measured at fair value using a valuation technique
with significant unobservable inputs - Level 3
Assets Liabilities
------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------
Designated
and otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives Total liabilities value Derivatives Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
---------------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Private
equity
and related
investments 3,742 16 90,767 - 94,525 6 - - 6
Structured
notes - - - - - - 34,734 - 34,734
Others 566 9,267 628 3,301 13,762 - - 1,712 1,712
---------------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
At 31 Dec
2022 4,308 9,283 91,395 3,301 108,287 6 34,734 1,712 36,452
---------------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Private
equity
and related
investments 3,121 4 74,295 - 77,420 - - - -
Structured
notes - - - - - - 20,449 - 20,449
Others 553 3,242 357 3,294 7,446 - - 2,130 2,130
---------------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
At 31 Dec
2021 3,674 3,246 74,652 3,294 84,866 - 20,449 2,130 22,579
---------------------- ------------------------ ---------------------- ---------------------- ---------------------- ------------------------ ---------------------- ---------------------- ------------------------
Private equity and related investments
The fair value of a private equity investment (including private
equity, infrastructure and private credit, primarily held to
support our Insurance business, and strategic investments) is
estimated on the basis of an analysis of the investee's financial
position and results, risk profile, prospects and other factors; by
reference to market valuations for similar entities quoted in an
active market; the price at which similar companies have changed
ownership; or from published net asset values ('NAVs') received. If
necessary, adjustments are made to the NAV of funds to obtain the
best estimate of fair value.
Structured notes
The fair value of Level 3 structured notes is derived from the
fair value of the underlying debt security, and the fair value of
the embedded derivative is determined as described in the paragraph
below on derivatives. These structured notes comprise principally
equity-linked notes issued by HSBC, which provide the counterparty
with a return linked to the performance of equity securities and
other portfolios.
Examples of the unobservable parameters include long-dated
equity volatilities and correlations between equity prices, and
interest and foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of
expected future cash flows, based upon 'no arbitrage' principles.
For many vanilla derivative products, the modelling approaches used
are standard across the industry. For more complex derivative
products, there may be some differences in market practice. Inputs
to valuation models are determined from observable market data
wherever possible, including prices available from exchanges,
dealers, brokers or providers of consensus pricing. Certain inputs
may not be observable in the market directly, but can be determined
from observable prices via model calibration procedures or
estimated from historical data or other sources.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
Movement in Level 3 financial instruments
Assets Liabilities
Designated
and otherwise
mandatorily
measured
at fair
value
through Designated
Financial Trading profit Trading at fair
investments assets or loss Derivatives liabilities value(1) Derivatives
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
--------------------------
At 1 Jan 2022 3,674 3,246 74,652 3,294 - 20,449 2,130
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
Total gains/(losses) recognised
in profit or loss - (952) 1,545 669 3 (851) 214
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (952) - 669 3 - 214
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 1,545 - - (851) -
* gains less losses from financial investments at fair
value through other comprehensive income - - - - - - -
Total gains recognised in
other comprehensive income
('OCI') 676 (81) (37) (25) - (1,001) (83)
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
- financial investments:
fair value gains/(losses) 812 - - - - (5) -
- exchange differences (136) (81) (37) (25) - (996) (83)
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------
Purchases 1,670 6,480 28,304 - - - -
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
New issuances - - - - - 5,936 -
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
Sales (71) (644) (71) - - - -
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
Settlements (1,641) (4,742) (12,809) (557) - 12,130 (553)
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
Transfers out - (772) (289) (394) - (2,671) (190)
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
Transfers in - 6,748 100 314 3 742 194
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
At 31 Dec 2022 4,308 9,283 91,395 3,301 6 34,734 1,712
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
31 Dec 2022 - (734) (1,615) 2,631 - (19) (78)
---------------------- ---------------------- -------------------------- ---------------------- ------------------------ ------------------------ ----------------------
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (734) - 2,631 - - (78)
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - (1,615) - - (19) -
At 1 Jan 2021 6,635 1,237 49,534 1,028 - 20,484 3,538
Total gains/(losses) recognised
in profit or loss (7) (2,211) 11,700 4,002 - (3,207) 3,082
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (2,211) - 4,002 - - 3,082
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 11,700 - - (3,207) -
* gains less losses from financial investments at fair
value through other comprehensive income (7) - - - - - -
Total gains/(losses) recognised
in other comprehensive income
('OCI') (3,013) 10 11 18 - 386 23
- financial investments:
fair value (losses) (3,002) - - - - (3) -
- exchange differences (11) 10 11 18 - 389 23
Purchases 1,383 5,082 22,232 - - - -
New issuances - - - - - 9,196 -
Sales (35) (561) (6) - - - -
Settlements (1,289) (87) (7,898) (1,247) - (7,165) (4,060)
Transfers out - (691) (921) (614) - (2,895) (878)
Transfers in - 467 - 107 - 3,650 425
At 31 Dec 2021 3,674 3,246 74,652 3,294 - 20,449 2,130
Unrealised gains/(losses)
recognised in profit or
loss relating to assets
and liabilities held at
31 Dec 2021 - (2,278) 11,236 2,686 - 113 (34)
* net income/(losses) from financial instruments held
for trading or managed on a fair value basis - (2,278) - 2,686 - - (34)
* changes in fair value of other financial instruments
mandatorily measured at fair value through profit or
loss - - 11,236 - - 113 -
1 Includes structured deposits where the settlement balance
represents the net of matured and new deposits.
Transfers between levels of the fair value hierarchy are deemed
to occur at the end of each quarter. Transfers into and out of
levels of the fair value hierarchy are primarily attributable to
observability of valuation inputs and price transparency.
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives
Sensitivity of fair values to reasonably possible alternative assumptions
2022 2021
Reflected
in profit or Reflected Reflected in Reflected in
loss in OCI profit or loss OCI
Un- Un- Un- Un-
Favourable favourable Favourable favourable Favourable favourable Favourable favourable
changes changes changes changes changes changes changes changes
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
Derivatives,
trading
assets and
trading
liabilities(1) 242 (308) - - 158 (162) - -
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
Financial
assets and
liabilities
designated
and otherwise
mandatorily
measured at
fair value
through profit
or
loss 4,580 (4,580) - - 3,741 (3,742) - -
Financial
investments - - 187 (187) - - 157 (157)
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
At 31 Dec 4,822 (4,888) 187 (187) 3,899 (3,904) 157 (157)
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
1 'Derivatives, trading assets and trading liabilities' are
presented as one category to reflect the manner in which these
instruments are risk-managed.
The sensitivity analysis aims to measure a range of fair values
consistent with the application of a 95% confidence interval.
Methodologies take account of the nature of the valuation technique
employed, as well as the availability and reliability of observable
proxy and historical data.
When the fair value of a financial instrument is affected by
more than one unobservable assumption, the above table reflects the
most favourable or the most unfavourable change from varying the
assumptions individually.
Key unobservable inputs to Level 3 financial instruments
The following table lists key unobservable inputs to Level 3
financial instruments and provides the range of those inputs at 31
December 2022.
Quantitative information about significant unobservable inputs in Level
3 valuations
Fair value 2022 2021
Full range Full range
Assets Liabilities of inputs of inputs
HK$m HK$m Key Lower Higher Lower Higher
Valuation unobservable
techniques inputs
---------------- ----------------- -------
Private equity
and
related
investments 94,525 6 See below See below
Structured
notes - 34,734
---------------- -----------------
- Model -
equity-linked Option Equity 6 142
notes - 12,917 model volatility % % 6% 90%
------- -----------
Model -
Option Equity 38 98
model correlation % % 22% 97%
------- -----------
Model -
- FX-linked Option 4 37
notes - 20,972 model FX volatility % % 2% 36%
------- -----------
- other - 845
Others(1) 13,762 1,712
---------------- -----------------
At 31 Dec 2022 108,287 36,452
---------------- -----------------
1 'Others' includes a range of smaller asset holdings.
Private equity and related investments
Given the bespoke nature of the analysis in respect of each
holding, it is not practical to quote a range of key unobservable
inputs. The key unobservable inputs would be price and correlation.
The valuation approach includes using a range of inputs that
include company specific financials, traded comparable companies
multiples, published net asset values and qualitative assumptions,
which are not directly comparable or quantifiable.
Volatility
Volatility is a measure of the anticipated future variability of
a market price. It varies by underlying reference market price, and
by strike and maturity of the option. Certain volatilities,
typically those of a longer-dated nature, are unobservable and are
estimated from observable data. The range of unobservable
volatilities reflects the wide variation in volatility inputs by
reference market price.
Correlation
Correlation is a measure of the inter-relationship between two
market prices and is expressed as a number between minus one and
one. It is used to value more complex instruments where the payout
is dependent upon more than one market price. There is a wide range
of instruments for which correlation is an input, and consequently
a wide range of both same-asset correlations and cross-asset
correlations is used. In general, the range of same-asset
correlations will be narrower than the range of cross-asset
correlations.
Unobservable correlations may be estimated based upon a range of
evidence, including consensus pricing services, group's trade
prices, proxy correlations and examination of historical price
relationships. The range of unobservable correlations quoted in the
table reflects the wide variation in correlation inputs by market
price pair.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not
be independent of each other. As described above, market variables
may be correlated. This correlation typically reflects the manner
in which different markets tend to react to macroeconomic or other
events. Furthermore, the effect of changing market variables on the
group's portfolio will depend on the group's net risk position in
respect of each variable.
34 Fair values of financial instruments not carried at fair value
--------------------------------------------------------------
Fair values of financial instruments not carried at fair value and
bases of valuation
Fair Value Hierarchy
Quoted Significant
market Observable unobservable
price inputs inputs
Carrying Level Level Level
amount 1 2 3 Total
HK$m HK$m HK$m HK$m HK$m
At 31 Dec 2022
Assets(1)
Reverse
repurchase
agreements -
non-trading 927,976 - 927,190 - 927,190
------------------------- ------------------------- ---------------------------- -------------------------
Loans and
advances to
banks 519,024 - 514,524 4,452 518,976
------------------------- ------------------------- ---------------------------- -------------------------
Loans and
advances to
customers 3,705,149 - 56,130 3,628,504 3,684,634
------------------------- ------------------------- ---------------------------- -------------------------
Financial
investments -
at amortised
cost 974,709 455,444 448,341 1,960 905,745
------------------------- ------------------------- ---------------------------- -------------------------
Liabilities(1)
Repurchase
agreements -
non-trading 351,093 - 349,133 - 349,133
------------------------- ------------------------- ---------------------------- -------------------------
Deposits by
banks 198,908 - 198,905 - 198,905
------------------------- ------------------------- ---------------------------- -------------------------
Customer
accounts 6,113,709 - 6,114,290 - 6,114,290
------------------------- ------------------------- ---------------------------- -------------------------
Debt securities
in issue 100,909 - 101,414 - 101,414
------------------------- ------------------------- ---------------------------- -------------------------
Subordinated
liabilities 3,119 - 2,191 - 2,191
At 31 Dec 2021
Assets(1)
Reverse
repurchase
agreements -
non-trading 803,775 - 802,881 947 803,828
Loans and
advances to
banks 432,247 - 424,175 8,356 432,531
Loans and
advances to
customers 3,840,939 - 65,268 3,765,148 3,830,416
Financial
investments -
at amortised
cost 502,564 89,050 449,284 2,142 540,476
Liabilities(1)
Repurchase
agreements -
non-trading 255,374 - 255,366 - 255,366
Deposits by
banks 280,310 - 280,408 - 280,408
Customer
accounts 6,177,182 - 6,177,676 - 6,177,676
Debt securities
in issue 67,364 - 67,842 - 67,842
Subordinated
liabilities 4,054 - 3,864 - 3,864
1 Amounts with HSBC Group entities are not reflected here.
Further details are set out in Note 32.
The fair values above are stated at a specific date and may be
significantly different from the amounts which will actually be
paid on the maturity or settlement dates of the instruments. In
many cases, it would not be possible to realise immediately the
estimated fair values given the size of the portfolios measured.
Accordingly, these fair values do not represent the value of these
financial instruments to the group as a going concern.
Other financial instruments not carried at fair value are
typically short term in nature or re-priced to current market rates
frequently. Accordingly, their carrying amount is a reasonable
approximation of fair value. They include cash and balances at
central banks, items in the course of collection from and
transmission to other banks, Hong Kong Government certificates of
indebtedness, Hong Kong currency notes in circulation, other
financial assets and other financial liabilities, all of which are
measured at amortised cost.
Valuation
Fair value is an estimate of the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It
does not reflect the economic benefits and costs that the group
expects to flow from an instrument's cash flow over its expected
future life. Our valuation methodologies and assumptions in
determining fair values for which no observable market prices are
available may differ from those of other companies.
Repurchase and reverse repurchase agreements - non-trading
Fair values approximate carrying amounts as these balances are
generally short dated.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and
customers, loans are segregated, as far as possible, into
portfolios of similar characteristics. Fair values are based on
observable market transactions, when available. When they are
unavailable, fair values are estimated using valuation models
incorporating a range of input assumptions. These assumptions may
include: value estimates from third-party brokers reflecting
over-the-counter trading activity; forward-looking discounted cash
flow models, taking account of expected customer prepayment rates,
using assumptions that the group believes are consistent with those
that would be used by market participants in valuing such loans;
new business rates estimates for similar loans; and trading inputs
from other market participants including observed primary and
secondary trades. From time to time, we may engage a third-party
valuation specialist to measure the fair value of a pool of
loans.
The fair value of loans reflects expected credit losses at the
balance sheet date and estimates of market participants'
expectations of credit losses over the life of the loans, and the
fair value effect of repricing between origination and the balance
sheet date. For credit impaired loans, fair value is estimated by
discounting the future cash flows over the time period they are
expected to be recovered.
Financial investments
The fair values of listed financial investments are determined
using bid market prices. The fair values of unlisted financial
investments are determined using valuation techniques that
incorporate the prices and future earnings streams of equivalent
quoted securities.
Deposits by banks and customer accounts
The fair values of on-demand deposits are approximated by their
carrying value. For deposits with longer-term maturities, fair
values are estimated using discounted cash flows, applying current
rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the
balance sheet date where available, or by reference to quoted
market prices for similar instruments.
35 Structured entities
-------------------
The group is involved with both consolidated and unconsolidated
structured entities through the securitisation of financial assets,
conduits and investment funds, established either by the group or a
third party.
Consolidated structured entities
The group uses consolidated structured entities to securitise
customer loans and advances it originates to diversify its sources
of funding for asset origination and capital efficiency purposes.
The loans and advances are transferred by the group to the
structured entities for cash or synthetically through credit
default swaps, and the structured entities issue debt securities to
investors. The group's transactions with these entities are not
significant.
Unconsolidated structured entities
The term 'unconsolidated structured entities' refers to all
structured entities not controlled by the group. The group enters
into transactions with unconsolidated structured entities in the
normal course of business to facilitate customer transactions and
for specific investment opportunities.
Nature and risks associated with the group's interests in unconsolidated
structured entities
Total asset values of the entities HSBC Non-HSBC
(HK$bn) managed managed
Securitisations funds funds Other Total
0-4 55 92 271 27 445
4-15 7 42 173 - 222
15-39 - 12 98 - 110
39-196 - 3 59 - 62
196+ - 1 11 - 12
Number of entities at 31 Dec
2022 62 150 612 27 851
HK$m HK$m HK$m HK$m HK$m
------------------------------- ------------------------------ ------------------------------ -----------------------------
Total assets in relation to the
group's interests in the unconsolidated
structured entities 17,564 34,071 109,351 5,245 166,231
- trading assets - 2,527 - 82 2,609
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss - 31,544 109,351 - 140,895
- derivatives - - - 10 10
- loans and advances to customers 17,564 - - 5,070 22,634
- other assets - - - 83 83
------------------------------- ------------------------------ ------------------------------
Total liabilities in relation
to the group's interests in the
unconsolidated structured entities - - - 223 223
- derivatives - - - 223 223
Other off balance sheet commitments 1,395 11,753 30,862 11,342 55,352
The group's maximum exposure
at 31 Dec 2022 18,959 45,824 140,213 16,364 221,360
Nature and risks associated with the group's interests in unconsolidated
structured entities (continued)
Total asset values of the entities HSBC Non-HSBC
(HK$bn) managed managed
Securitisations funds funds Other Total
0-4 65 65 114 21 265
-----------------------------
4-15 11 37 130 - 178
-----------------------------
15-39 - 15 91 - 106
-----------------------------
39-196 - 1 50 - 51
-----------------------------
196+ - 1 3 - 4
-----------------------------
Number of entities at 31 Dec 2021 76 119 388 21 604
-----------------------------
HK$m HK$m HK$m HK$m HK$m
-----------------------------
Total assets in relation to the
group's interests in the unconsolidated
structured entities 35,225 32,223 86,044 10,140 163,632
-----------------------------
- trading assets - 1,041 - 432 1,473
* financial assets designated and otherwise mandatorily
measured at fair value through profit or loss - 31,182 86,044 - 117,226
- derivatives - - - - -
- loans and advances to customers 35,225 - - 9,625 44,850
- other assets - - - 83 83
Total liabilities in relation
to the group's interests in the
unconsolidated structured entities - - - 60 60
-----------------------------
- derivatives - - - 60 60
Other off balance sheet commitments 402 6,999 26,246 5,939 39,586
-----------------------------
The group's maximum exposure at
31 Dec 2021 35,627 39,222 112,290 16,019 203,158
-----------------------------
The maximum exposure to loss from the group's interests in
unconsolidated structured entities represents the maximum loss it
could incur as a result of its involvement with these entities
regardless of the probability of the loss being incurred.
-- For commitments, guarantees and written credit default swaps,
the maximum exposure to loss is the notional amount of potential
future losses.
-- For retained and purchased investments in and loans to
unconsolidated structured entities, the maximum exposure to loss is
the carrying value of these interests at the balance sheet
reporting date.
The maximum exposure to loss is stated gross of the effects of
hedging and collateral arrangements entered into to mitigate the
group's exposure to loss.
Securitisations
The group has interests in unconsolidated securitisation
vehicles through holding notes issued by these entities.
HSBC managed funds
The group establishes and manages money market funds and
non-money market investment funds to provide customers with
investment opportunities. The group, as fund manager, may be
entitled to receive management and performance fees based on the
assets under management. The group may also retain units in these
funds.
Non-HSBC managed funds
The group purchases and holds units of third-party managed funds
in order to facilitate business and meet customer needs.
Other
The group has established structured entities in the normal
course of business, such as structured credit transactions for
customers, to provide finance to public and private sector
infrastructure projects, and for asset and structured finance
transactions. In addition to the interest disclosed above, the
group enters into derivative contracts, reverse repos and stock
borrowing transactions with structured entities. These interests
arise in the normal course of business for the facilitation of
third-party transactions and risk management solutions.
Structured entities sponsored by the group
The amount of assets transferred to and income received from
such sponsored entities during 2022 and 2021 were not
significant.
36 Bank balance sheet and statement of changes in equity
-----------------------------------------------------
Bank balance sheet at 31 December 2022
2022 2021
HK$m HK$m
--------------------------------------------------------------- ------------------------ -------------------------
Assets
--------------------------------------------------------------- ------------------------ -------------------------
Cash and balances at central banks 169,595 203,988
--------------------------------------------------------------- ------------------------ -------------------------
Items in the course of collection from other banks 22,886 17,825
--------------------------------------------------------------- ------------------------ -------------------------
Hong Kong Government certificates of indebtedness 341,354 332,044
--------------------------------------------------------------- ------------------------ -------------------------
Trading assets 587,760 647,625
--------------------------------------------------------------- ------------------------ -------------------------
Derivatives 481,979 346,937
--------------------------------------------------------------- ------------------------ -------------------------
Financial assets designated and otherwise mandatorily
measured at fair value through profit or loss 5,431 3,246
--------------------------------------------------------------- ------------------------ -------------------------
Reverse repurchase agreements - non-trading 468,799 488,312
--------------------------------------------------------------- ------------------------ -------------------------
Loans and advances to banks 298,225 230,592
--------------------------------------------------------------- ------------------------ -------------------------
Loans and advances to customers 1,951,155 1,984,297
--------------------------------------------------------------- ------------------------ -------------------------
Financial investments 947,830 893,848
--------------------------------------------------------------- ------------------------ -------------------------
Amounts due from Group companies 720,765 544,587
--------------------------------------------------------------- ------------------------ -------------------------
Investments in subsidiaries 109,211 101,535
--------------------------------------------------------------- ------------------------ -------------------------
Interests in associates and joint ventures 39,830 39,830
--------------------------------------------------------------- ------------------------ -------------------------
Goodwill and intangible assets 23,659 19,226
--------------------------------------------------------------- ------------------------ -------------------------
Property, plant and equipment 71,555 72,312
--------------------------------------------------------------- ------------------------ -------------------------
Deferred tax assets 1,304 1,275
--------------------------------------------------------------- ------------------------ -------------------------
Prepayments, accrued income and other assets 214,624 145,729
--------------------------------------------------------------- ------------------------ -------------------------
Total assets 6,455,962 6,073,208
--------------------------------------------------------------- ------------------------ -------------------------
Liabilities
--------------------------------------------------------------- ------------------------ -------------------------
Hong Kong currency notes in circulation 341,354 332,044
--------------------------------------------------------------- ------------------------ -------------------------
Items in the course of transmission to other banks 26,601 19,101
--------------------------------------------------------------- ------------------------ -------------------------
Repurchase agreements - non-trading 307,661 175,476
--------------------------------------------------------------- ------------------------ -------------------------
Deposits by banks 155,423 224,650
--------------------------------------------------------------- ------------------------ -------------------------
Customer accounts 3,740,697 3,816,715
--------------------------------------------------------------- ------------------------ -------------------------
Trading liabilities 95,097 46,585
--------------------------------------------------------------- ------------------------ -------------------------
Derivatives 532,325 337,010
--------------------------------------------------------------- ------------------------ -------------------------
Financial liabilities designated at fair value 49,396 36,397
--------------------------------------------------------------- ------------------------ -------------------------
Debt securities in issue 26,584 25,393
--------------------------------------------------------------- ------------------------ -------------------------
Retirement benefit liabilities 898 1,098
--------------------------------------------------------------- ------------------------ -------------------------
Amounts due to Group companies 563,368 482,995
--------------------------------------------------------------- ------------------------ -------------------------
Accruals and deferred income, other liabilities and provisions 132,141 120,846
--------------------------------------------------------------- ------------------------ -------------------------
Current tax liabilities 3,537 481
--------------------------------------------------------------- ------------------------ -------------------------
Deferred tax liabilities 9,267 9,339
--------------------------------------------------------------- ------------------------ -------------------------
Subordinated liabilities 3,119 3,119
--------------------------------------------------------------- ------------------------ -------------------------
Total liabilities 5,987,468 5,631,249
--------------------------------------------------------------- ------------------------ -------------------------
Equity
--------------------------------------------------------------- ------------------------ -------------------------
Share capital 180,181 172,335
--------------------------------------------------------------- ------------------------ -------------------------
Other equity instruments 52,386 44,615
--------------------------------------------------------------- ------------------------ -------------------------
Other reserves 3,143 19,218
--------------------------------------------------------------- ------------------------ -------------------------
Retained earnings 232,784 205,791
--------------------------------------------------------------- ------------------------ -------------------------
Total equity 468,494 441,959
--------------------------------------------------------------- ------------------------ -------------------------
Total equity and liabilities 6,455,962 6,073,208
--------------------------------------------------------------- ------------------------ -------------------------
Bank statement of changes in equity for the year ended 31
December 2022
Other reserves
Financial Cash
Other Property assets flow Foreign
Share equity Retained revaluation at FVOCI hedge exchange Total
capital(1) instruments earnings reserve reserve reserve reserve Other(3) equity
HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m HK$m
At 1 Jan 2022 172,335 44,615 205,791 36,900 1,524 63 (15,369) (3,900) 441,959
---------------------- ------------------ ------------------- -------------------- ----------------------
Profit for the year - - 54,987 - - - - - 54,987
---------------------- ---------------------- ------------------ ---------------------- -------------------- ------------------- -------------------- ----------------------
Other comprehensive
income/(expense) (net
of tax) - - 4,600 2,948 (10,829) (993) (4,999) - (9,273)
---------------------- ------------------- -------------------- ----------------------
* debt instruments at fair value through other
comprehensive income - - - - (11,369) - - - (11,369)
* equity instruments designated at fair value through
other comprehensive income - - - - 540 - - - 540
- cash flow hedges - - - - - (993) - - (993)
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - 4,432 - - - - - 4,432
- property revaluation - - - 2,948 - - - - 2,948
* remeasurement of defined benefit asset/liability - - 168 - - - - - 168
- exchange differences - - - - - - (4,999) - (4,999)
---------------------- ------------------ ------------------- --------------------
Total comprehensive
income/(expense) for
the year - - 59,587 2,948 (10,829) (993) (4,999) - 45,714
---------------------- ------------------- -------------------- ----------------------
Shares issued(1) 7,846 - - - - - - - 7,846
---------------------- ---------------------- ------------------ ---------------------- -------------------- ------------------- -------------------- ----------------------
Other equity instruments
issued(2) - 7,771 - - - - - - 7,771
---------------------- ---------------------- ------------------ ---------------------- -------------------- ------------------- -------------------- ----------------------
Dividends to shareholders(4) - - (34,821) - - - - - (34,821)
---------------------- ---------------------- ------------------ ---------------------- -------------------- ------------------- -------------------- ----------------------
Movement in respect
of share-based payment
arrangements - - 127 - - - - (127) -
---------------------- ------------------- -------------------- ----------------------
Transfers and other
movements(5) - - 2,100 (2,080) 2 - - 3 25
---------------------- ---------------------- ------------------ ---------------------- -------------------- ------------------- -------------------- ----------------------
At 31 Dec 2022 180,181 52,386 232,784 37,768 (9,303) (930) (20,368) (4,024) 468,494
---------------------- ---------------------- ------------------ ---------------------- -------------------- ------------------- -------------------- ----------------------
At 1 Jan 2021 172,335 44,615 221,300 35,196 6,364 605 (12,679) (3,760) 463,976
---------------------- ------------------- --------------------
Profit for the year - - 40,815 - - - - - 40,815
---------------------- ------------------ -------------------- ------------------- -------------------- ----------------------
Other comprehensive
income/(expense) (net
of tax) - - 912 3,453 (4,834) (542) (2,690) - (3,701)
* debt instruments at fair value through other
comprehensive income - - - - (3,289) - - - (3,289)
* equity instruments designated at fair value through
other comprehensive income - - - - (1,545) - - - (1,545)
- cash flow hedges - - - - - (542) - - (542)
* changes in fair value of financial liabilities
designated at fair value upon initial recognition
arising from changes in own credit risk - - 524 - - - - - 524
- property revaluation - - - 3,453 - - - - 3,453
* remeasurement of defined benefit asset/liability - - 388 - - - - - 388
- exchange differences - - - - - - (2,690) - (2,690)
---------------------- ------------------ ------------------- --------------------
Total comprehensive
income/(expense) for
the year - - 41,727 3,453 (4,834) (542) (2,690) - 37,114
------------------- --------------------
Dividends to shareholders(4) - - (59,105) - - - - - (59,105)
---------------------- ------------------ -------------------- ------------------- -------------------- ----------------------
Movement in respect
of share-based payment
arrangements - - 115 - - - - (140) (25)
---------------------- ------------------- --------------------
Transfers and other
movements(5) - - 1,754 (1,749) (6) - - - (1)
---------------------- ------------------ -------------------- ------------------- -------------------- ----------------------
At 31 Dec 2021 172,335 44,615 205,791 36,900 1,524 63 (15,369) (3,900) 441,959
---------------------- ------------------ -------------------- ------------------- -------------------- ----------------------
1 Ordinary share capital includes preference shares which have
been redeemed or bought back via payments out of distributable
profits in previous years. During 2022, 3,138.4m new ordinary
shares were issued at an issue price of HK$2.5 each.
2 During 2022, an additional tier 1 capital instrument was
issued amounted to US$1,000m on which there were US$10m issue
costs.
3 The other reserves mainly comprise purchase premium arising
from transfer of business from fellow subsidiaries, property
revaluation reserve relating to transfer of properties to a fellow
subsidiary and the share-based payment reserve. The share-based
payment reserve is used to record the amount relating to share
awards and options granted to employees of the group directly by
HSBC Holdings plc.
4 Including distributions paid on perpetual subordinated loans
classified as equity under HKFRS.
5 The movements include transfers from the property revaluation
reserve to retained earnings in relation to depreciation of
revalued properties.
5
37 Business acquisitions
---------------------
The following acquisitions form part of our strategy to become a
market leader in Asian wealth management:
-- On 28 January 2022, HSBC Insurance (Asia-Pacific) Holdings
Limited, a subsidiary of the group, notified the shareholders of
Canara HSBC Life Insurance Company Limited ('Canara HSBC') of its
intention to increase its shareholding in Canara HSBC up to 49%.
The group currently has a 26% shareholding which is accounted for
as an associate. Any increase in shareholding is subject to
agreement with other shareholders in Canara HSBC, as well as
internal and regulatory approvals. Established in 2008, Canara HSBC
is a life insurance company based in India.
-- On 11 February 2022, HSBC Insurance (Asia-Pacific) Holdings
Limited completed the acquisition of 100% of AXA Insurance Pte
Limited ('AXA Singapore') for HK$4.1bn. A gain on acquisition of
HK$665m was recorded, reflecting the excess of the fair value of
net assets acquired (gross assets of HK$35.6bn and gross
liabilities of HK$30.8bn) over the acquisition price. The legal
integration of AXA Singapore with HSBC's pre-existing insurance
operations in the country concluded on 1 February 2023.
-- On 6 April 2022, the Bank announced it had increased its
shareholding in HSBC Qianhai Securities Limited, a partially-owned
subsidiary, from 51% to 90%.
-- On 23 June 2022, HSBC Insurance (Asia) Limited, a subsidiary
of the group, acquired the remaining 50% equity interest in HSBC
Life Insurance Company Limited. Headquartered in Shanghai, HSBC
Life Insurance Company Limited offers a comprehensive range of
insurance solutions covering annuity, whole life, critical illness
and unit-linked insurance products.
--
38 Legal proceedings and regulatory matters
----------------------------------------
The group is party to legal proceedings and regulatory matters
in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, the group
considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting
policies set out in Note 1.2(n). While the outcomes of legal
proceedings and regulatory matters are inherently uncertain,
management believes that, based on the information available to it,
appropriate provisions have been made in respect of these matters
as at 31 December 2022. Any provision recognised does not
constitute an admission of wrongdoing or legal liability. It is not
practicable to provide an aggregate estimate of potential liability
for our legal proceedings and regulatory matters as a class of
contingent liabilities.
Anti-money laundering and sanctions-related matters
In December 2012, HSBC Holdings plc ('HSBC Holdings') entered
into a number of agreements, including an undertaking with the UK
Financial Services Authority (replaced with a Direction issued by
the UK Financial Conduct Authority ('FCA') in 2013 and again in
2020) as well as a cease-and-desist order with the US Federal
Reserve Board ('FRB'), both of which contained certain
forward-looking anti-money laundering ('AML') and sanctions-related
obligations. For several years thereafter, HSBC retained a Skilled
Person under section 166 of the Financial Services and Markets Act
and an Independent Consultant, under the FRB cease-and-desist order
to produce periodic assessments of the Group's AML and sanctions
compliance programme. The Skilled Person completed its engagement
in the second quarter of 2021, and the FCA determined that no
further Skilled Person work is required. Separately, the
Independent Consultant's engagement is now complete and, in August
2022, the FRB terminated its cease-and-desist order.
Singapore Interbank Offered Rate ('Sibor') and Singapore Swap
Offer Rate ('SOR')
In 2016, the Bank and other panel banks were named as defendants
in a putative class action filed in the New York District Court on
behalf of persons who transacted in products related to the Sibor
and SOR benchmark rates. The complaint alleged, among other things,
misconduct related to these benchmark rates in violation of US
antitrust, commodities and racketeering laws, and state law.
In October 2021, the Bank reached a settlement-in-principle with
the plaintiffs to resolve this action, the agreement for which was
executed in May 2022. The court granted final approval of the
settlement in November 2022.
Other regulatory investigations, reviews and litigation
The Bank and/or certain of its affiliates are subject to a
number of other investigations and reviews by various regulators
and competition and law enforcement authorities, as well as
litigation, in connection with various matters relating to the
firm's businesses and operations, including investigations by tax
administration, regulatory and law enforcement authorities in India
and elsewhere in connection with allegations of tax evasion or tax
fraud, money laundering and unlawful cross-border banking
solicitation.
There are many factors that may affect the range of outcomes,
and the resulting financial impact, of these matters, which could
be significant.
39 Ultimate holding company
------------------------
The ultimate holding company of the Bank is HSBC Holdings plc,
which is incorporated in England.
The largest group in which the accounts of the Bank are
consolidated is that headed by HSBC Holdings plc. The consolidated
accounts of HSBC Holdings plc are available to the public on the
HSBC Group's website at www.hsbc.com or may be obtained from 8
Canada Square, London E14 5HQ, United Kingdom.
40 Events after the balance sheet date
-----------------------------------
There have been no events after the balance sheet date that
would require disclosure in the consolidated financial
statements.
41 Approval of financial statements
--------------------------------
The Consolidated Financial Statements were approved and
authorised for issue by the Board of Directors on 21 February
2023.
Additional cautionary statement
regarding ESG and climate-related
data, metrics and forward-looking
statements
The Annual Report and Accounts 2022 contains a number of
forward-looking statements (as defined above) with respect to the
Group's (including the group's) ESG targets, commitments,
ambitions, climate-related scenarios or pathways and the
methodologies the Group uses to assess the Group's progress in
relation to these ("ESG-related forward-looking statements").
In preparing the ESG-related information contained in the Annual
Report and Accounts 2022, the group has relied on a number of key
judgements, estimations and assumptions of the Group and the
processes and issues involved are complex. The Group has used ESG
and climate data, models and methodologies that it considers, as of
the date on which they were used, to be appropriate and suitable to
understand and assess climate change risk and its impact, to
analyse financed emissions - and operational and supply chain
emissions, to set ESG-related targets and to evaluate the
classification of sustainable finance and investments. However,
these data, models and methodologies are new, are rapidly evolving
and are not of the same standard as those available in the context
of other financial information, nor are they subject to the same or
equivalent disclosure standards, historical reference points,
benchmarks or globally accepted accounting principles. In
particular, it is not possible to rely on historical data as a
strong indicator of future trajectories, in the case of climate
change and its evolution. Outputs of models, processed data and
methodologies are also likely to be affected by underlying data
quality, which can be hard to assess and the Group expects industry
guidance, market practice, and regulations in this field to
continue to change. In light of the highly uncertain nature of the
evolution of climate change and its impact, the Group (including
the group) may have to re-evaluate its progress towards its ESG
ambitions, commitments and targets in the future, update the
methodologies it uses or alter its collective approach to ESG and
climate analysis and may be required to amend, update and
recalculate its ESG disclosures and assessments in the future, as
market practice and data quality and availability develops rapidly.
The ESG-related forward-looking statements and metrics discussed in
the Annual Report and Accounts 2022 therefore carry an additional
degree of inherent risk and uncertainty.
No assurance can be given by or on behalf of the group as to the
likelihood of the achievement or reasonableness of any projections,
estimates, forecasts, targets, commitments, ambitions, prospects or
returns contained herein. Readers are cautioned that a number of
factors, both external and those specific to the Group (including
the group), could cause actual achievements, results, performance
or other future events or conditions of the group to differ, in
some cases materially, from those stated, implied and/or reflected
in any ESG-related forward-looking statements or metrics due to a
variety of risks, uncertainties and other factors (including
without limitation those referred to below):
-- Climate change projection risk: this includes, for example,
the evolution of climate change and its impacts, changes in the
scientific assessment of climate change impacts, transition
pathways and future risk exposure and limitations of climate
scenario forecasts;
-- Changes in the ESG regulatory landscape: this involves
changes in government approach and regulatory treatment in relation
to ESG disclosures and reporting requirements, and the current lack
of a single standardised regulatory approach to ESG across all
sectors and markets;
-- Variation in reporting standards: ESG reporting standards are
still developing and are not standardised or comparable across all
sectors and markets, new reporting standards in relation to
different ESG metrics are still emerging
-- Data availability, accuracy, verifiability and data gaps: the
Group's disclosures are limited by the availability of high quality
data needed to calculate financed emissions. Where data is not
available for all sectors or consistently year on year, there may
be an impact to the Group's data quality scores. Whilst the Group
expects its data quality scores to improve over time, as companies
continue to expand their disclosures to meet growing regulatory and
stakeholder expectations, there may be unexpected fluctuations
within sectors year on year, and/or differences between the data
quality scores between sectors. Any such changes in the
availability and quality of data over time could result in
revisions to reported data going forward, including on financed
emissions, meaning that such data may not be reconcilable or
comparable year-on year;
-- Developing methodologies: the methodologies the Group
(including the group) uses to assess financed emissions and set
ESG-related targets may develop over time in line with market
practice, regulation and/or developments in science, where
applicable. Any such developments in methodologies could result in
revisions to reported data going forward, including on financed
emissions meaning that data outputs may not be reconcilable or
comparable year-on year. In addition, climate scenarios and the
models that analyse them have limitations that are sensitive to key
assumptions and parameters, which are themselves subject to some
uncertainty, and cannot fully capture all of the potential effects
of climate, policy and technology driven outcomes; and
-- Risk management capabilities: governments', customers', and
the Group's (including the group's) actions may not be effective in
supporting the global transition to net zero carbon emissions and
in managing and mitigating ESG risks, including in particular
climate risk, nature-related risks and human rights risks, each of
which can impact the Group (including the group) both directly and
indirectly through its customers, and which may result in potential
financial and non-financial impacts to the Group (including the
group). In particular:
- the Group (including the group) may not be able to achieve its
ESG targets, commitments and ambitions (including with respect to
the commitments set forth in the Group's thermal coal phase-out
policy, energy policy and targets to reduce on-balance sheet
financed emissions in its portfolio of selected high-emitting
sectors), which may result in its failure to achieve any of the
expected benefits of its strategic priorities; and
- the Group (including the group) may not be able to develop
sustainable finance and climate-related products consistent with
the evolving expectations of its regulators, and its capacity to
measure the climate impact from its financing activity may diminish
(including as a result of data and model limitations and changes in
methodologies), which may affect its ability to achieve its climate
ambition, its targets to reduce its on-balance sheet financed
emissions in its portfolio of selected high-emitting sectors and
the commitments set forth in the Group's thermal coal phase-out
policy and energy policy, and increase the risk of
greenwashing.
The group makes no commitment to revise or update any ESG
forward-looking statements to reflect events or circumstances
occurring or existing after the date of any ESG forward-looking
statements. Written and/or oral ESG-related forward-looking
statements may also be made in its periodic reports to its
regulators, public offering or disclosure documents, press releases
and other written materials, and in oral statements made by its
Directors, officers or employees to third parties, including
financial analysts.
The Group's data dictionaries and methodologies for preparing
the above ESG-related metrics and third-party limited assurance
reports can be found on:
www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.
(c) The Hongkong and Shanghai
Banking
Corporation Limited 2023
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END
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