TIDMHSBA

RNS Number : 0391I

HSBC Holdings PLC

25 August 2016

Financial summary

 
 
 
Financial summary 
 
Use of non-GAAP financial measures                                                    18 
Adjusted performance                                                                  18 
Foreign currency translation differences                                              18 
Significant items                                                                     18 
Consolidated income statement                                                         19 
==================================================================================== 
Group performance by income and expense item                                          20 
Net interest income                                                                   20 
Net fee income                                                                        21 
Net trading income                                                                    22 
Net income from financial instruments designated at fair value                        23 
Gains less losses from financial investments                                          24 
Net insurance premium income                                                          24 
Other operating income                                                                25 
Net insurance claims and benefits paid and movement in liabilities to policyholders   26 
Loan impairment charges and other credit risk provisions                              27 
Operating expenses                                                                    28 
Share of profit in associates and joint ventures                                      30 
Tax expense                                                                           30 
==================================================================================== 
Consolidated balance sheet                                                            31 
Movement from 31 December 2015 to 30 June 2016                                        32 
==================================================================================== 
Reconciliation of RoRWA measures                                                      34 
==================================================================================== 
 
 

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 101. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures.

Non-GAAP financial measures that we use throughout this Interim Report 2016 are described below. Non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the period-on-period effects of foreign currency translation differences and significant items which distort period-on-period comparisons.

We use 'significant items' to collectively describe the group of individual adjustments that are excluded from reported results when arriving at adjusted performance. These items, which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance in order to better understand underlying trends in the business.

We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant and providing insight into how management assesses period-on-period performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies for 1H16. We exclude the translation differences when deriving constant currency data because using these data allows us to assess balance sheet and income statement performance on a like-for-like basis to better understand the underlying trends in the business.

 
 
 
 
Foreign 
 currency 
 translation 
 differences 
 
 Foreign 
 currency 
 translation 
 differences 
 for 
 the 
 half-years 
 to 
 30 
 June 
 2015 
 and 
 31 
 December 
 2015 
 are 
 computed 
 by 
 retranslating 
 into 
 US 
 dollars 
 for 
 non-US 
 dollar 
 branches, 
 subsidiaries, 
 joint 
 ventures 
 and 
 associates: 
 
 -- 
 
 the 
 income 
 statements 
 for 
 the 
 half-years 
 to 
 30 
 June 
 2015 
 and 
 31 
 December 
 2015 
 at 
 the 
 average 
 rates 
 of 
 exchange 
 for 
 the 
 half--year 
 to 
 30 
 June 
 2016; 
 and 
 
 -- 
 
 the 
 balance 
 sheets 
 at 
 30 
 June 
 2015 
 and 
 31 
 December 
 2015 
 at 
 the 
 prevailing 
 rates 
 of 
 exchange 
 on 
 30 
 June 
 2016. 
 
 No 
 adjustment 
 has 
 been 
 made 
 to 
 the 
 exchange 
 rates 
 used 
 to 
 translate 
 foreign 
 currency 
 denominated 
 assets 
 and 
 liabilities 
 into 
 the 
 functional 
 currencies 
 of 
 any 
 HSBC 
 branches, 
 subsidiaries, 
 joint 
 ventures 
 or 
 associates. 
 When 
 reference 
 is 
 made 
 to 
 foreign 
 currency 
 translation 
 differences 
 in 
 tables 
 or 
 commentaries, 
 comparative 
 data 
 reported 
 in 
 the 
 functional 
 currencies 
 of 
 HSBC's 
 operations 
 have 
 been 
 translated 
 at 
 the 
 appropriate 
 exchange 
 rates 
 applied 
 in 
 the 
 current 
 period 
 on 
 the 
 basis 
 described 
 above. 
 
 

Significant items

The tables on pages 53 to 58 detail the effect of significant items on each of our geographical segments and global businesses during 1H16 and the two halves of 2015.

HSBC HOLDINGS PLC

18

Financial summary (continued)

Consolidated income statement

Summary consolidated income statement

 
 
 
                                                                                             Half-year to 
                                                                                -------------------------------------- 
                                                                                 30 Jun        30 Jun        31 Dec 
                                                                                   2016          2015          2015 
                                                                                     $m            $m            $m 
 
Net interest income                                                              15,760        16,444        16,087 
============================================================================ 
Net fee income                                                                    6,586         7,725         6,980 
============================================================================ 
Net trading income                                                                5,324         4,573         4,150 
============================================================================ 
Net income/(expense) from financial instruments designated at fair value            561         2,666        (1,134) 
============================================================================ 
Gains less losses from financial investments                                        965         1,874           194 
============================================================================ 
Dividend income                                                                      64            68            55 
============================================================================ 
Net insurance premium income                                                      5,356         5,607         4,748 
============================================================================ 
Other operating income                                                              644           836           219 
============================================================================    -------       -------       ------- 
 
Total operating income                                                           35,260        39,793        31,299 
============================================================================ 
 
Net insurance claims and benefits paid and movement in liabilities to 
policyholders                                                                    (5,790)       (6,850)       (4,442) 
============================================================================    -------       -------       ------- 
 
Net operating income before loan impairment charges and other credit risk 
provisions                                                                       29,470        32,943        26,857 
============================================================================ 
 
Loan impairment charges and other credit risk provisions                         (2,366)       (1,439)       (2,282) 
============================================================================    -------       -------       ------- 
 
Net operating income                                                             27,104        31,504        24,575 
============================================================================ 
 
Total operating expenses                                                        (18,628)      (19,187)      (20,581) 
============================================================================    -------       -------       ------- 
 
Operating profit                                                                  8,476        12,317         3,994 
============================================================================ 
 
Share of profit in associates and joint ventures                                  1,238         1,311         1,245 
============================================================================    -------       -------       ------- 
 
Profit before tax                                                                 9,714        13,628         5,239 
============================================================================ 
 
Tax expense                                                                      (2,291)       (2,907)         (864) 
============================================================================    -------       -------       ------- 
 
Profit for the period                                                             7,423        10,721         4,375 
============================================================================    -------       -------       ------- 
 
Profit attributable to shareholders of the parent company                         6,912         9,618         3,904 
============================================================================ 
Profit attributable to non-controlling interests                                    511         1,103           471 
============================================================================ 
 
Average foreign exchange translation rates to $: 
$1: GBP                                                                           0.698         0.657         0.652 
============================================================================ 
$1: EUR                                                                           0.896         0.897         0.906 
============================================================================ 
 

HSBC HOLDINGS PLC

19

Group performance by income and expense item

For further financial performance data for each geographical region and global business, see pages 35 to 45 and 46 to 58, respectively.

Net interest income

 
 
 
                                                                  Half-year to 
                                                   ------------------------------------------- 
                                                      30 Jun         30 Jun         31 Dec 
                                                        2016           2015           2015 
                                        Footnotes         $m             $m             $m 
 
Interest income                                       23,011         24,019         23,170 
====================================== 
Interest expense                                      (7,251)        (7,575)        (7,083) 
======================================             ---------      ---------      --------- 
 
Net interest income                             1     15,760         16,444         16,087 
======================================             ---------      ---------      --------- 
 
Average interest-earning assets                    1,733,961      1,730,663      1,723,296 
====================================== 
 
Gross interest yield                            2       2.67%          2.80%          2.67% 
====================================== 
Cost of funds                                          (1.01%)        (1.03%)        (0.97%) 
====================================== 
Net interest spread                             3       1.66%          1.77%          1.70% 
====================================== 
Net interest margin                             4       1.83%          1.92%          1.85% 
Net interest margin excluding Brazil                    1.75%          1.82%          1.77% 
====================================== 
 

For footnotes, see page 59.

In 1H16, we recorded $974m of net interest income in Brazil (1H15: $1,214m; 2H15: $1,011m) and average interest earning assets were $37,390m (1H15: $43,684m; 2H15: $36,409m).

Reported net interest income of $15.8bn decreased by $0.7bn or 4% compared with 1H15. This included the significant items and currency translation summarised in the table below.

On a reported basis, net interest margin of 1.83% fell by 9 basis points ('bps'), driven by currency movements. On

1 July 2016, we completed the sale of our operations in Brazil. During 1H16, our net interest margin excluding our operations in Brazil was 1.75%, 8 basis points ('bps') lower than the group's total net interest margin for this period, reflecting the impact of relatively higher interest rates in Brazil compared with the rest of our portfolio.

Significant items and currency translation

 
 
 
                                                                                         Half-year to 
                                                                                   ------------------------- 
                                                                                   30 Jun  30 Jun  31 Dec 
                                                                                     2016    2015    2015 
                                                                                       $m      $m      $m 
Significant items 
  - releases/(provisions) arising from the ongoing review of compliance with the 
   UK Consumer 
   Credit Act                                                                           2      12     (22) 
================================================================================= 
 
                                                                                        2      12     (22) 
Currency translation                                                                          946     457 
=================================================================================  ------  ------  ------ 
 
Total                                                                                   2     958     435 
=================================================================================  ------  ------  ------ 
 

Excluding the currency impact tabulated above, net interest income rose $0.3bn, as increases in Hong Kong, Mexico and Argentina were partly offset by a reduction in the UK and mainland China. However, net interest spread and margin decreased slightly. This was due to a number of factors, including reduced yields on customer lending in Europe and increased costs of debt issued by HSBC Holdings, although we benefited from lower costs of funds on customer accounts in Hong Kong and increased yields in Mexico and Argentina.

Interest income

Reported interest income fell by $1.0bn compared with 1H15, notably driven by currency movements in Latin

America and Europe. Excluding these, total interest income rose by $0.6bn, notably in Mexico, Argentina and the US. Interest income also rose in our operations in Brazil, although this was more than offset by an increase in interest expense.

Interest income on loans and advances to customers was higher. In Mexico and Argentina, this was due to higher yields following central bank interest rate rises. In Europe, the increase was mainly driven by balance growth in term lending in the UK despite lower yields on mortgages in line with competitive pricing, and the effect of downward movements in market interest rates in the eurozone. In Asia, although yields on lending increased marginally in Hong Kong and Singapore, customer lending income was broadly unchanged as the increase in yields was offset by the impact

HSBC HOLDINGS PLC

20

Financial summary (continued)

of central bank rate decreases in various countries, notably mainland China, and from a decrease in average balances. However, in North America, interest income from customer lending fell from continued run-off and sales in the US CML run-off portfolio.

Interest income on short-term funds and financial investments marginally increased. This was driven by a change in product mix in North America towards higher-yielding, mortgage-backed securities in order to maximise the effectiveness of the portfolio and, to a lesser extent, in Argentina from balance growth. These increases were partly offset by reductions in Europe from lower yields.

Interest income on reverse repurchase agreements - non--trading was higher, driven by higher balances and market rates in North America.

Interest expense

Reported interest expense fell by $0.3bn compared with 1H15 driven by currency translation, primarily in Latin America and Europe.

Excluding this, interest expense rose $0.4bn as decreases in Asia were partly offset by an increase in cost in North America, Europe and Argentina.

Interest expense on customer accounts fell despite growth in average balances. This reflected a change in mix towards lower cost accounts in Hong Kong and central bank rate reductions in a number of markets, notably mainland China and Australia. This was partly offset by higher interest expense on customer accounts in North America, in line with promotional deposit offerings, and in Argentina from central bank rate rises.

Interest expense on debt issued rose, due to a rise in the cost of funds, despite a fall in average balances as redemptions across the Group were more than offset by issuances of senior debt from HSBC Holdings plc. The increase in the cost of debt was driven by a combination of market sentiment as well as longer maturities and the structural subordination of our new issuances. In addition, Interest expense rose on repos, notably in North America, reflecting higher balances and market rates.

Net fee income

 
 
 
                                                   Half-year to 
                                            --------------------------- 
                                            30 Jun   30 Jun   31 Dec 
                                              2016     2015     2015 
                                                $m       $m       $m 
 
Account services                             1,310    1,383    1,362 
========================================== 
Funds under management                       1,172    1,310    1,260 
========================================== 
Cards                                        1,010    1,120    1,161 
========================================== 
Credit facilities                              908      989      930 
========================================== 
Broking income                                 530      817      624 
========================================== 
Imports/exports                                436      485      486 
========================================== 
Unit trusts                                    412      595      412 
========================================== 
Underwriting                                   372      450      312 
========================================== 
Remittances                                    371      387      385 
========================================== 
Global custody                                 330      371      350 
========================================== 
Insurance agency commission                    228      284      235 
========================================== 
Other                                        1,123    1,181    1,127 
==========================================  ------   ------   ------ 
 
Fee income                                   8,202    9,372    8,644 
========================================== 
 
Less: fee expense                           (1,616)  (1,647)  (1,664) 
==========================================  ------   ------   ------ 
 
Net fee income                               6,586    7,725    6,980 
==========================================  ------   ------   ------ 
 

Reported net fee income fell by $1.1bn compared with 1H15, partly reflecting the adverse effects of currency

translation between the periods of $0.3bn, notably in Asia and Europe.

Significant items and currency translation

 
 
 
                                        Half-year to 
                             ----------------------------------- 
                                       30 Jun   30 Jun  31 Dec 
                                         2016     2015    2015 
                                           $m       $m      $m 
Significant items                          -         -       - 
========================== 
 
Currency translation                               295     132 
==============================================  ------  ------ 
 
Total                                       -       295     132 
===========================                      ------  ------ 
 

On an adjusted basis, net fee income decreased by $844m, driven by a reduction in Hong Kong, primarily within RBWM. This partly reflected the effect of weaker equity markets and

risk-averse investor sentiment in Asia. Net fee income also decreased in Switzerland within GPB.

HSBC HOLDINGS PLC

21

Fee income from broking and unit trusts fell by $443m, compared with a strong performance in 1H15. The decrease was mainly in Hong Kong, driven by lower securities broking income and falling fund sales in RBWM, in part reflecting a reduction in stock market turnover of 46%.

Fee income from funds under management also decreased, by $108m. This was partly driven by lower fees in our Global Asset Management business in RBWM following a reduction in funds under management balances as a result of adverse market conditions, notably in Europe. Fee income from funds under management also decreased in Switzerland in GPB.

Net trading income

 
 
 
                                                                  Half-year to 
                                                           --------------------------- 
                                                           30 Jun   30 Jun   31 Dec 
                                                             2016     2015     2015 
                                                               $m       $m       $m 
 
Trading activities                                          5,020    3,553    3,732 
========================================================= 
Net interest income on trading activities                     730    1,053      722 
========================================================= 
Loss on termination of hedges                                   -       (8)      (3) 
========================================================= 
Other trading income/(expense) - hedge ineffectiveness: 
  - on cash flow hedges                                         4        4       11 
========================================================= 
  - on fair value hedges                                      (41)      26      (37) 
========================================================= 
Fair value movement on non-qualifying hedges                 (389)     (55)    (275) 
=========================================================  ------   ------   ------ 
 
Net trading income                                          5,324    4,573    4,150 
=========================================================  ------   ------   ------ 
 

Reported net trading income of $5.3bn was $0.8bn higher than in 1H15. This included significant items and currency translation summarised in the table below.

Significant items and currency translation

 
 
 
                                                                              Half-year to 
                                                                       --------------------------- 
                                                                       30 Jun   30 Jun   31 Dec 
                                                                         2016     2015     2015 
                                                                           $m       $m       $m 
Included within trading activities: 
    - favourable debit valuation adjustment on derivative contracts       151      165       65 
===================================================================== 
Other significant items: 
    - adverse fair value movements on non-qualifying hedges              (397)     (45)    (282) 
=====================================================================  ------   ------   ------ 
 
                                                                         (246)     120     (217) 
Currency translation                                                               237      210 
=====================================================================  ------   ------   ------ 
 
Total                                                                    (246)     357       (7) 
=====================================================================  ------   ------   ------ 
 

On an adjusted basis, net trading income from trading activities increased by $1.4bn, primarily driven by favourable movements of $1.3bn in the period compared with adverse movements of $0.6bn in 1H15 on assets held as economic hedges of foreign currency debt designated at fair value. Both these movements were offset by adverse movements on foreign currency debt designated at fair value in 'Net income from financial instruments designated at fair value'.

Excluding these movements, trading income decreased by $0.6bn, primarily in GB&M. Income decreased in Equities and Foreign Exchange, due to market volatility that led to reduced client activity. This was partly offset by an increase in revenue from our Rates business which benefited from increased client activity.

HSBC HOLDINGS PLC

22

Financial summary (continued)

Net income from financial instruments designated at fair value

 
 
 
                                                                                        Half-year to 
                                                                                 --------------------------- 
                                                                                 30 Jun   30 Jun   31 Dec 
                                                                                   2016     2015     2015 
                                                                                     $m       $m       $m 
Net income/(expense) arising from: 
  - financial assets held to meet liabilities under insurance and investment 
   contracts                                                                        209    1,615   (1,084) 
=============================================================================== 
  - liabilities to customers under investment contracts                              30     (301)     335 
=============================================================================== 
  - HSBC's long-term debt issued and related derivatives                            270    1,324     (461) 
=============================================================================== 
     - change in own credit spread on long-term debt (significant item)           1,226      650      352 
=============================================================================== 
     - other changes in fair value                                                 (956)     674     (813) 
===============================================================================  ------   ------   ------ 
 
  - other instruments designated at fair value and related derivatives               52       28       76 
===============================================================================  ------   ------   ------ 
 
Net income from financial instruments designated at fair value                      561    2,666   (1,134) 
===============================================================================  ------   ------   ------ 
 

Assets and liabilities from which net income from financial instruments designated at fair value arose

 
 
 
                                                                                 At 
                                                                          ---------------- 
                                                                          30 Jun  31 Dec 
                                                                            2016    2015 
                                                                              $m      $m 
 
Financial assets designated at fair value                                 23,901  23,852 
======================================================================== 
Financial liabilities designated at fair value                            78,882  66,408 
======================================================================== 
 
Including: 
Financial assets held to meet liabilities under: 
  - insurance contracts and investment contracts with DPF                 11,438  11,119 
======================================================================== 
  - unit-linked insurance and other insurance and investment contracts    11,206  11,153 
======================================================================== 
Long-term debt issues designated at fair value                            72,660  60,188 
======================================================================== 
 

The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.

These liabilities are discussed further on page 359 of the Annual Report and Accounts 2015.

Reported net income from financial instruments designated at fair value was $0.6bn in 1H16, compared with $2.7bn in 1H15. The former included favourable movements in the fair value of our own long-term debt of $1.2bn due to changes in credit spread, compared with favourable movements of $650m in 1H15.

Significant items and currency translation

 
 
 
                                   Half-year to 
                             ------------------------- 
                             30 Jun  30 Jun  31 Dec 
                               2016    2015    2015 
                                 $m      $m      $m 
Significant items 
  - own credit spread         1,226     650     352 
=========================== 
 
Currency translation                    152     (60) 
===========================  ------  ------  ------ 
 
Total                         1,226     802     292 
===========================  ------  ------  ------ 
 

On an adjusted basis, which excludes changes in our own credit spread and the net adverse effect of currency translation shown above, net income from financial instruments designated at fair value decreased by $2.5bn.

Net income from financial assets held to meet liabilities under insurance and investment contracts of $209m was $1.4bn lower than in 1H15. This was primarily driven by weaker equity markets in France, Hong Kong and the UK.

The $1.4bn change was, however, broadly offset by 'liabilities to customers under investment contracts', and by 'Net insurance claims and benefits paid and movements in liabilities to policyholders' which are described on page 26.

Investment gains or losses arising from equity markets result in a corresponding movement in liabilities to customers. This reflects the extent to which unit-linked policyholders, in particular, participate in the investment performance of the associated asset portfolio.

Where the gains or losses are recorded depends on the contract type. When gains or losses relate to assets held to back investment contracts, the corresponding movement in liabilities to customers is recorded in 'Net income/(expense) from financial instruments designated at fair value'.

When gains or losses related to assets held to back insurance contracts or investment contracts with discretionary participation features ('DPF'), any corresponding movement

HSBC HOLDINGS PLC

23

in liabilities to customers is recorded in 'Net insurance claims and benefits paid and movement in liabilities to policyholders', which is detailed on page 26.

Other changes in fair value on our long-term debt and related derivatives primarily reflected:

 
 
--  In GB&M, adverse movements of $1.3bn, compared to favourable movements of $0.6bn in 1H15, 
     on foreign 
 

currency debt designated at fair value and issued as part of our overall funding strategy (offset by assets held as economic hedges in 'Net trading income').

This was partly offset by:

 
 
--  In 'Other', favourable fair value movements of $0.4bn, compared with minimal movements in 
     1H15, relating to the economic hedging of interest and exchange rate risk on our long-term 
     debt. 
 

Gains less losses from financial investments

 
 
 
                                                             Half-year to 
                                                      --------------------------- 
                                                      30 Jun   30 Jun   31 Dec 
                                                        2016     2015     2015 
                                                          $m       $m       $m 
Net gains from disposal of: 
  - debt securities                                      280      310       35 
==================================================== 
  - equity securities                                    693    1,578      251 
==================================================== 
  - other financial investments                            4        4        1 
====================================================  ------   ------   ------ 
 
                                                         977    1,892      287 
Impairment of available-for-sale equity securities       (12)     (18)     (93) 
====================================================  ------   ------   ------ 
 
Gains less losses from financial investments             965    1,874      194 
====================================================  ------   ------   ------ 
 

In 1H16, gains less losses from financial investments decreased by $0.9bn on a reported basis compared with 1H15. This was driven by the significant items and currency translation tabulated below, notably the non-recurrence of

the gain on the partial sale of our shareholding in Industrial Bank of $1.4bn in 1H15, and in 1H16 a gain on disposal of our membership interest in Visa Europe.

Significant items and currency translation

 
 
 
                                                                         Half-year to 
                                                                   ------------------------ 
                                                                   30 Jun  30 Jun  31 Dec 
                                                                     2016    2015    2015 
                                                                       $m      $m      $m 
Significant items 
  - gain on disposal of our membership interest in Visa Europe        584       -       - 
================================================================= 
  - gain on the partial sale of shareholding in Industrial Bank         -   1,372       - 
=================================================================  ------  ------  ------ 
                                                                      584   1,372       - 
 
Currency translation                                                           19       8 
=================================================================  ------  ------  ------ 
 
Total                                                                 584   1,391       8 
=================================================================  ------  ------  ------ 
 

On an adjusted basis, excluding all significant items and currency translation tabulated above, gains less losses from financial investments decreased by $102m, driven by GB&M.

This was primarily driven by lower gains on equity securities in both Markets and Principal Investments.

Net insurance premium income

 
 
 
                                                   Half-year to 
                                            --------------------------- 
                                            30 Jun   30 Jun   31 Dec 
                                              2016     2015     2015 
                                                $m       $m       $m 
 
Gross insurance premium income               5,728    5,855    5,157 
========================================== 
Reinsurance premiums                          (372)    (248)    (409) 
==========================================  ------   ------   ------ 
 
Net insurance premium income                 5,356    5,607    4,748 
==========================================  ------   ------   ------ 
 

Reported net insurance premium income was $0.3bn lower than in 1H15, largely due to adverse effects of currency translation $159m.

HSBC HOLDINGS PLC

24

Financial summary (continued)

Significant items and currency translation

 
 
 
                                         Half-year to 
                             ------------------------------------ 
                                       30 Jun    30 Jun  31 Dec 
                                         2016      2015    2015 
                                           $m        $m      $m 
Significant items                          -          -       - 
========================== 
Currency translation                                159      20 
===============================================  ------  ------ 
 
Total                                          -     159      20 
===========================   ------------------  ------  ------ 
 

On an adjusted basis, excluding the effects of currency translation, net insurance premium income fell by $92m or 2%. This was largely driven by the disposal of our UK pensions business in 2H15, following our decision to exit the UK commercial pension market in 2014, and lower participating contract premiums in France.

In Asia, increased premiums in Singapore and Hong Kong on participating contracts were partly offset by the impact of new reinsurance agreements in Hong Kong.

Other operating income

 
 
 
                                                                                    Half-year to 
                                                                             -------------------------- 
                                                                             30 Jun   30 Jun  31 Dec 
                                                                               2016     2015    2015 
                                                                                 $m       $m      $m 
 
Rent received                                                                    82       84      87 
=========================================================================== 
Gains/(losses) recognised on assets held for sale                                57       34    (278) 
=========================================================================== 
(Losses)/gains on investment properties                                          (3)      33      28 
=========================================================================== 
Gains on disposal of property, plant and equipment, intangible assets and 
 non-financial investments                                                       28       26      27 
=========================================================================== 
Change in present value of in-force long-term insurance business                351      438     361 
=========================================================================== 
Other                                                                           129      221      (6) 
===========================================================================  ------   ------  ------ 
 
Other operating income                                                          644      836     219 
===========================================================================  ------   ------  ------ 
 

Change in present value of in-force long-term insurance business

 
 
 
                                                                           Half-year to 
                                                                    --------------------------- 
                                                                    30 Jun   30 Jun   31 Dec 
                                                                      2016     2015     2015 
                                                                        $m       $m       $m 
 
Value of new business                                                  458      438      371 
================================================================== 
Expected return                                                       (266)    (279)    (273) 
================================================================== 
Assumption changes and experience variances                            172      241      263 
================================================================== 
Other adjustments                                                      (13)      38        - 
==================================================================  ------   ------   ------ 
 
Change in present value of in-force long-term insurance business       351      438      361 
==================================================================  ------   ------   ------ 
 

Reported other operating income decreased by $192m from 1H15. This included the effects of the significant items recorded in the table below.

Significant items and currency translation

 
 
 
                                                                                         Half-year to 
                                                                                  -------------------------- 
                                                                                  30 Jun   30 Jun  31 Dec 
                                                                                    2016     2015    2015 
                                                                                      $m       $m      $m 
Significant items 
  Included within gains recognised on assets held for sale:                           36       17    (249) 
================================================================================ 
  - disposal costs of Brazilian operations                                           (32)       -     (18) 
================================================================================ 
  - gain/(loss) on sale of several tranches of real estate secured accounts in 
   the US                                                                             68       17    (231) 
================================================================================  ------   ------  ------ 
Currency translation                                                                           39      23 
================================================================================  -------  ------  ------ 
 
Total                                                                                 36       56    (226) 
================================================================================  ------   ------  ------ 
 

HSBC HOLDINGS PLC

25

Excluding the significant items and currency translation tabulated above, other operating income decreased by $172m compared with 1H15. This was primarily from lower favourable movements in present value of in-force ('PVIF') long-term insurance business and minimal movement in valuations on investment properties compared with gains in 1H15, mainly in Asia.

The lower favourable movement in PVIF in 2016 was primarily driven by decreasing yields in France, partly offset by the favourable effects of changes to interest rate assumptions in Singapore.

In addition, 1H15 included a change in interest rate assumption in France which had the effect of increasing PVIF.

Net insurance claims and benefits paid and movement in liabilities to policyholders

 
 
 
                                                                                        Half-year to 
                                                                                 --------------------------- 
                                                                                 30 Jun   30 Jun   31 Dec 
                                                                                   2016     2015     2015 
                                                                                     $m       $m       $m 
Insurance claims and benefits paid and movement in liabilities to 
policyholders: 
  - gross                                                                         6,192    7,099    4,773 
=============================================================================== 
  - reinsurers' share                                                              (402)    (249)    (331) 
===============================================================================  ------   ------   ------ 
 
Net total                                                                         5,790    6,850    4,442 
===============================================================================  ------   ------   ------ 
 

Reported net insurance claims and benefits paid and movement in liabilities to policy holders were $1.1bn lower

than in 1H15, in part reflecting the currency translation movements of $0.2bn.

Significant items and currency translation

 
 
 
                                             Half-year to 
                             --------------------------------------------- 
                              30 Jun             30 Jun           31 Dec 
                                2016               2015             2015 
                                  $m                 $m               $m 
Significant items                  -                  -                - 
========================== 
 
Currency translation                                217               19 
======================================  ---------------  --------------- 
 
Total                                 -              217               19 
===========================   ---------  ---------------  --------------- 
 

Excluding the effects of currency translation, net insurance claims and benefits paid and movements in liabilities to policyholders were $0.8bn lower than in 1H15.

This reduction was primarily in Europe, and to a lesser extent Hong Kong, reflecting a decrease in returns on financial assets supporting liabilities to policyholders where the policyholder is exposed to investment risk. This decrease in returns reflected weaker equity market performance in France, Hong Kong and the UK.

Other drivers were reduced surrenders in Hong Kong and the impact of the sale of the UK pensions business in 2015. These reductions were partly offset by increases in liabilities to policyholders in Singapore, as a result of changes to interest rate assumptions.

The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in 'Net income from financial instruments designated at fair value' on page 23.

HSBC HOLDINGS PLC

26

Financial summary (continued)

Loan impairment charges and other credit risk provisions

 
 
 
                                                                                Half-year to 
                                                                         --------------------------- 
                                                                         30 Jun   30 Jun   31 Dec 
                                                                           2016     2015     2015 
                                                                             $m       $m       $m 
Loan impairment charges 
  - new allowances net of allowance releases                              2,623    1,797    2,603 
======================================================================= 
  - recoveries of amounts previously written off                           (340)    (350)    (458) 
=======================================================================  ------   ------   ------ 
 
                                                                          2,283    1,447    2,145 
 
  - individually assessed allowances                                      1,263      480    1,025 
======================================================================= 
  - collectively assessed allowances                                      1,020      967    1,120 
=======================================================================  ------   ------   ------ 
Impairment allowances/(release) of available-for-sale debt securities        34      (38)      21 
======================================================================= 
Other credit risk provisions                                                 49       30      116 
=======================================================================  ------   ------   ------ 
 
Loan impairment charges and other credit risk provisions                  2,366    1,439    2,282 
=======================================================================  ------   ------   ------ 
 
                                                                              %        %        % 
Impairment charges on loans and advances to customers as a percentage 
 of average gross loans and advances to customers (annualised)             0.52     0.31     0.47 
======================================================================= 
 

Reported loan impairment charges and other credit risk provisions ('LICs') of $2.4bn were $927m higher than

in 1H15. This included favourable currency translation of $160m.

Significant items and currency translation

 
 
 
                                    Half-year to 
                             --------------------------- 
                              30 Jun    30 Jun  31 Dec 
                                2016      2015    2015 
                                  $m        $m      $m 
Significant items                  -         -       - 
========================== 
 
Currency translation                       160      19 
======================================  ------  ------ 
 
Total                                 -     160      19 
===========================   ---------  ------  ------ 
 

Excluding the effects of currency translation, LICs were $1.1bn higher than in 1H15. This was due to an increase in Brazil (up by $346m) reflecting a deterioration in local economic conditions, as well as higher individually assessed charges in a small number of countries, notably in the oil and gas sector.

On an adjusted basis, individually assessed LICs were $1.3bn, an increase of $822m compared with 1H15. This primarily reflected increases in our GB&M and CMB businesses and included the following:

 
 
--  In North America (up by $495m), individually assessed LICs increased in our GB&M business 
     in the US. This was primarily related to a significant specific charge on a mining related 
     corporate exposure, as well as charges in the oil and gas sector. In addition, individually 
     assessed LICs also increased in CMB in both Canada and the US, mainly in the oil and gas sector. 
 
 
 
--  In Asia (up by $125m), individually assessed charges increased, notably in our GB&M business 
     in Australia, primarily driven by a small number of charges related to metals and mining exposures. 
     In addition, the comparative period benefited from a release of allowances in Hong Kong. 
 
 
 
--  In Europe (up by $140m), individually assessed charges increased. This was mainly in the UK 
     in our RBWM business due to net charges on individually assessed mortgage balances, compared 
     with a net release in 1H15. Also, in Spain there were higher charges in CMB related to the 
     construction sector. 
 
 
 
--  In Latin America (up by $47m), individually assessed charges increased, primarily in Brazil 
     due to the deterioration of economic conditions. 
 

On an adjusted basis, collectively assessed LICs rose by $173m, mainly in RBWM and, to a lesser extent, in CMB. The increase arose from:

 
 
--  In Latin America collectively assessed LICs increased by $281m. This was mainly in Brazil 
     (up by $217m) in both our RBWM and CMB businesses, where delinquency rates increased following 
     the deterioration of economic conditions. In addition, LICs rose in Mexico in our RBWM business 
     in line with our strategic focus on growing unsecured lending. 
 

This was partly offset by:

 
 
--  In North America (down by $45m) LICs decreased in our CMB and GB&M businesses as collectively 
     assessed provisions related to the oil and gas sector were replaced with individually assessed 
     LICs against specific clients in this sector (as discussed earlier). This was partly offset 
     by an increase in our RBWM US CML run-off portfolio. 
 
 
 
--  In Europe, collectively assessed LICs decreased by $26m, mainly our RBWM business. This reflected 
     a reduction in Turkey from favourable credit performance on unsecured lending, as well as 
     net release of allowances in Greece. This was partly offset by an increase in our CMB business 
     in the UK, primarily reflecting new allowances against exposures in the oil and gas sector. 
 

HSBC HOLDINGS PLC

27

In 1H16, we recorded net impairment allowances on available-for-sale debt securities compared with net releases

in 1H15. Both primarily related to asset-backed securities ('ABSs') in our UK GB&M business.

Operating expenses

 
 
 
 
In                                     business-as-usual 
 addition                               activity 
 to                                     to 
 detailing                              enhance 
 operating                              future 
 expense                                operating 
 items                                  capabilities. 
 by 
 category,                              -- 
 as 
 set                                    'Costs-to-achieve' 
 out                                    comprise 
 in                                     those 
 the                                    specific 
 table                                  costs 
 below,                                 relating 
 we                                     to 
 also                                   the 
 categorise                             achievement 
 adjusted                               of 
 expenses                               the 
 as                                     strategic 
 follows:                               actions 
                                        set 
 --                                     out 
                                        in 
 'Run-the-bank'                         the 
 costs                                  Investor 
 comprise                               Update 
 business-as-usual                      in 
 running                                June 
 costs                                  2015. 
 that                                   They 
 keep                                   comprise 
 operations                             costs 
 functioning                            incurred 
 at                                     between 
 the                                    1 
 required                               July 
 quality                                2015 
 and                                    and 
 standard                               31 
 year                                   December 
 on                                     2017 
 year,                                  and 
 maintain                               do 
 IT                                     not 
 infrastructure                         include 
 and                                    ongoing 
 support                                initiatives 
 revenue                                such 
 growth.                                as 
 Run-the-bank                           Global 
 costs                                  Standards. 
 are                                    Any 
 split                                  costs 
 between                                arising 
 front                                  within 
 office                                 this 
 and                                    category 
 back                                   have 
 office,                                been 
 reflecting                             incurred 
 the                                    as 
 way                                    part 
 the                                    of 
 Group                                  a 
 is                                     significant 
 organised                              transformation 
 into                                   programme. 
 four                                   Costs-to-achieve 
 global                                 are 
 businesses                             included 
 ('front                                within 
 office')                               significant 
 supported                              items 
 by                                     and 
 global                                 incorporate 
 functions                              restructuring 
 ('back                                 costs 
 office').                              which 
                                        were 
 --                                     identified 
                                        as 
 'Change-the-bank'                      a 
 costs                                  separate 
 comprise                               significant 
 expenses                               item 
 relating                               prior 
 to                                     to 
 the                                    1 
 implementation                         July 
 of                                     2015. 
 mandatory 
 regulatory                             -- 
 changes 
 and                                    The 
 other                                  UK 
 investment                             bank 
 costs                                  levy 
 incurred                               is 
 relating                               reported 
 to                                     as 
 projects                               a 
 to                                     separate 
 change                                 category. 
 
 
 
 
 
                                                                          Half-year to 
                                                                    ------------------------ 
                                                                    30 Jun  30 Jun  31 Dec 
                                                                      2016    2015    2015 
                                                                        $m      $m      $m 
By expense category 
  Employee compensation and benefits                                 9,354  10,041   9,859 
================================================================== 
  Premises and equipment (excluding depreciation and impairment)     1,901   1,939   1,891 
================================================================== 
  General and administrative expenses                                5,566   6,190   7,642 
==================================================================  ------  ------  ------ 
 
  Administrative expenses                                           16,821  18,170  19,392 
================================================================== 
  Depreciation and impairment of property, plant and equipment         605     604     665 
================================================================== 
  Amortisation and impairment of intangible assets and goodwill      1,202     413     524 
==================================================================  ------  ------  ------ 
 
Operating expenses                                                  18,628  19,187  20,581 
==================================================================  ------  ------  ------ 
 
 
 
 
                                                   Half-year to 
                                            -------------------------- 
                                            30 Jun   30 Jun   31 Dec 
                                              2016     2015     2015 
                                                $m       $m       $m 
By expense group 
  Run-the-bank - front office                7,583    7,756    7,511 
========================================== 
  Run-the-bank - back office                 7,036    7,161    7,307 
========================================== 
  Change-the-bank                            1,454    1,733    1,739 
========================================== 
  Bank levy                                   (128)     (44)   1,465 
========================================== 
  Significant items                          2,683    1,544    2,040 
========================================== 
  Currency translation                                1,037      519 
========================================== 
 
Operating expenses                          18,628   19,187   20,581 
==========================================  ------   ------   ------ 
 

Staff numbers (full-time equivalents)

 
 
 
                                                        At 
                                            --------------------------- 
                                             30 Jun   30 Jun   31 Dec 
                                               2016     2015     2015 
Geographical regions 
  Europe                                     65,387   69,867   67,509 
========================================== 
  Asia                                      119,699  120,588  120,144 
========================================== 
  Middle East and North Africa                7,693    8,208    8,066 
========================================== 
  North America                              18,838   20,338   19,656 
========================================== 
  Latin America                              39,719   40,787   39,828 
==========================================  -------  -------  ------- 
 
Staff numbers                               251,336  259,788  255,203 
==========================================  -------  -------  ------- 
 

HSBC HOLDINGS PLC

28

Financial summary (continued)

Reported operating expenses of $18.6bn were $0.6bn or 3% lower than in 1H15, which included an impairment of $0.8bn relating to the goodwill in our GPB business in Europe (please see Note 20 for further details). The lower operating

expenses benefited from the favourable effects of currency translation of $1.0bn, partly offset by a $1.1bn increase in significant items.

Significant items and currency translation

 
 
 
                                                                         Half-year to 
                                                                   ------------------------ 
                                                                   30 Jun  30 Jun  31 Dec 
                                                                     2016    2015    2015 
                                                                       $m      $m      $m 
Significant items 
  - costs-to-achieve                                                1,018       -     908 
================================================================= 
  - costs to establish UK ring-fenced bank                             94       -      89 
================================================================= 
  - disposal costs of Brazilian operations                             11       -     110 
================================================================= 
  - impairment of Global Private Banking - Europe goodwill            800       -       - 
================================================================= 
  - regulatory provisions in GPB                                        4     147      25 
  - restructuring and other related costs                               -     117       - 
================================================================= 
  - settlements and provisions in connection with legal matters       723   1,144     505 
  - UK customer redress programmes                                     33     137     404 
=================================================================  ------  ------  ------ 
 
                                                                    2,683   1,545   2,041 
Currency translation                                                        1,037     519 
=================================================================  ------  ------  ------ 
 
Total                                                               2,683   2,582   2,560 
=================================================================  ------  ------  ------ 
 

On an adjusted basis, operating expenses of $15.9bn were $0.7bn lower than in 1H15, despite inflationary pressures and increases in regulatory programmes and compliance costs. This primarily reflected transformational cost savings of $0.9bn achieved in 1H16. On a run-rate basis, we are now approximately 40% of the way towards achieving the cost savings target we committed to in our Investor Update in June 2015.

Run-the-bank costs of $14.6bn were $0.3bn lower than in 1H15 and change-the-bank costs of $1.5bn were $0.3bn lower than in 1H15. This reflected the following factors:

 
 
--  In RBWM, costs were $0.3bn lower, reflecting the effects of our transformational cost initiatives, 
     which included our branch optimisation programme. 
 
 
 
--  In GB&M, costs were $0.2bn lower, reflecting lower performance-related costs, primarily in 
     Europe and Asia, and the effects of our transformational cost initiatives, including significantly 
     lower headcount and better use of our shared global service centres. 
 
 
 
--  In GPB, costs were $0.1bn lower, reflecting a fall in staff costs from lower FTEs, primarily 
     in Europe and Asia. 
 
 
 
--  In CMB, costs remained broadly unchanged due to strong cost discipline and delivery of transformation 
     initiatives, including a more simplified organisation structure and process optimisation within 
     our lending, on-boarding and servicing platforms. 
 
 
 
--  The cost savings in the global businesses noted above were also supported by the benefits 
     of transformational activities in our technology, operations and other functions, primarily 
     from process automation and organisational re-design. 
 

Included within the above, our total expenditure on regulatory programmes and compliance, comprising both run-the-bank and change-the-bank elements, was $1.5bn, up $0.2bn or 14% from 1H15. This reflected the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.

Excluding investment in regulatory programmes and compliance, and credits relating to the prior year bank levy in both periods, adjusted operating expenses declined by $0.8bn or 5% compared with 1H15.

The number of employees expressed in FTEs at 30 June 2016 was 251,336, a decrease of 3,867 from 31 December 2015. This was driven by reductions in global businesses and global functions, partly offset by investment related to financial crime risk of 540 FTEs, and cost-to-achieve FTEs of 3,918.

HSBC HOLDINGS PLC

29

Reported cost efficiency ratios

 
 
 
                                                 Half-year to 
                                            ---------------------- 
                                            30 Jun  30 Jun  31 Dec 
                                              2016    2015    2015 
                                                 %       %       % 
 
HSBC                                          63.2    58.2    76.6 
========================================== 
 
Geographical regions 
  Europe                                      82.2    78.3   112.2 
========================================== 
  Asia                                        44.6    38.8    48.3 
========================================== 
  Middle East and North Africa                41.9    48.4    47.8 
========================================== 
  North America                               83.1    79.7    91.0 
========================================== 
  Latin America                               68.8    67.6    78.5 
========================================== 
 
Global businesses 
  Retail Banking and Wealth Management        70.2    67.1    78.3 
========================================== 
  Commercial Banking                          41.9    44.1    46.7 
========================================== 
  Global Banking and Markets                  53.3    56.4    63.3 
========================================== 
  Global Private Banking                     158.8    85.0    83.5 
========================================== 
 

Share of profit in associates and joint ventures

 
 
 
                                                          Half-year to 
                                                    ------------------------ 
                                                    30 Jun  30 Jun  31 Dec 
                                                      2016    2015    2015 
                                                        $m      $m      $m 
 
Associates 
  Bank of Communications Co., Limited                  974   1,021     990 
================================================== 
  The Saudi British Bank                               244     240     222 
================================================== 
  Other                                                  8      25      20 
==================================================  ------  ------  ------ 
 
Share of profit in associates                        1,226   1,286   1,232 
================================================== 
Share of profit in joint ventures                       12      25      13 
==================================================  ------  ------  ------ 
 
Share of profit in associates and joint ventures     1,238   1,311   1,245 
==================================================  ------  ------  ------ 
 

Our reported share of profit in associates and joint ventures was $1.2bn, a decrease of $73m or 6%, largely from adverse effects of currency translation of $55m.

On an adjusted basis, share of profit in associates and joint ventures fell by $18m or 1%, primarily relating to HSBC Saudi Arabia, reflecting challenging stock market and economic conditions.

Tax expense

 
 
 
                                                          Half-year to 
                                            ---------------------------------------- 
                                            30 Jun                30 Jun  31 Dec 
                                              2016                  2015    2015 
                                                $m                    $m      $m 
 
Profit before tax                            9,714                13,628   5,239 
========================================== 
Tax expense                                 (2,291)              (2,907)    (864) 
==========================================  ------      ----------------  ------ 
 
Profit after tax                             7,423               10,721    4,375 
==========================================  ------      ----------------  ------ 
 
Effective tax rate                            23.6%              21.3%      16.5% 
========================================== 
 

The effective tax rate for 1H16 of 23.6% was higher than the 21.3% in 1H15, principally due to the 8% surcharge on UK banking profits.

HSBC HOLDINGS PLC

30

Financial summary (continued)

Consolidated balance sheet

Summary consolidated balance sheet

 
 
 
                                                            At 
                                                  ---------------------- 
                                                     30 Jun     31 Dec 
                                                       2016       2015 
                                                         $m         $m 
Assets 
Cash and balances at central banks                  128,272     98,934 
================================================ 
Trading assets                                      280,295    224,837 
================================================ 
Financial assets designated at fair value            23,901     23,852 
================================================ 
Derivatives                                         369,942    288,476 
================================================ 
Loans and advances to banks                          92,199     90,401 
================================================ 
Loans and advances to customers                     887,556    924,454 
================================================ 
Reverse repurchase agreements - non-trading         187,826    146,255 
================================================ 
Financial investments                               441,399    428,955 
================================================ 
Assets held for sale                                 50,305     43,900 
================================================ 
Other assets                                        146,454    139,592 
================================================  ---------  --------- 
 
Total assets                                      2,608,149  2,409,656 
================================================  ---------  --------- 
 
Liabilities and equity 
Liabilities 
Deposits by banks                                    69,900     54,371 
================================================ 
Customer accounts                                 1,290,958  1,289,586 
================================================ 
Repurchase agreements - non-trading                  98,342     80,400 
================================================ 
Trading liabilities                                 188,698    141,614 
================================================ 
Financial liabilities designated at fair value       78,882     66,408 
================================================ 
Derivatives                                         368,414    281,071 
================================================ 
Debt securities in issue                             87,673     88,949 
================================================ 
Liabilities under insurance contracts                73,416     69,938 
================================================ 
Liabilities of disposal groups held for sale         43,705     36,840 
================================================ 
Other liabilities                                   109,864    102,961 
================================================  ---------  --------- 
 
Total liabilities                                 2,409,852  2,212,138 
================================================  ---------  --------- 
 
Equity 
Total shareholders' equity                          191,257    188,460 
================================================ 
Non-controlling interests                             7,040      9,058 
================================================  ---------  --------- 
 
Total equity                                        198,297    197,518 
================================================  ---------  --------- 
 
Total liabilities and equity                      2,608,149  2,409,656 
================================================  ---------  --------- 
 

HSBC HOLDINGS PLC

31

Selected financial information

 
 
 
                                                                                    At 
                                                                        -------------------------- 
                                                                           30 Jun         31 Dec 
                                                                             2016           2015 
                                                                               $m             $m 
 
Called up share capital                                                     9,906          9,842 
==================================================================== 
Capital resources                                                         186,793        189,833 
==================================================================== 
Undated subordinated loan capital                                           1,968          2,368 
==================================================================== 
Preferred securities and dated subordinated loan capital                   42,170         42,844 
==================================================================== 
Risk-weighted assets                                                    1,082,184      1,102,995 
==================================================================== 
 
Financial statistics 
Loans and advances to customers as a percentage of customer accounts         68.8           71.7 
==================================================================== 
Average total shareholders' equity to average total assets                   7.44           7.31 
==================================================================== 
Net asset value per ordinary share at period end ($)                         8.75           8.73 
==================================================================== 
Number of $0.50 ordinary shares in issue (millions)                        19,813         19,685 
==================================================================== 
 
Closing foreign exchange translation rates to $: 
$1: GBP                                                                     0.744          0.675 
==================================================================== 
$1: EUR                                                                     0.900          0.919 
==================================================================== 
 

A more detailed consolidated balance sheet is contained in the Financial Statements on page 101.

Combined view of customer lending and customer deposits

 
 
 
                                                                                                    At 
                                                                                          ---------------------- 
                                                                                             30 Jun     31 Dec 
                                                                                               2016       2015 
                                                                               Footnotes         $m         $m 
 
Loans and advances to customers                                                             887,556    924,454 
============================================================================= 
Loans and advances to customers reported in 'Assets held for sale'                           20,711     19,021 
============================================================================= 
  - Brazil                                                                             5     19,203     17,001 
============================================================================= 
  - other                                                                                     1,508      2,020 
=============================================================================             ---------  --------- 
 
 
Combined customer lending                                                                   908,267    943,475 
=============================================================================             ---------  --------- 
 
Customer accounts                                                                         1,290,958  1,289,586 
============================================================================= 
Customer accounts reported in 'Liabilities of disposal groups held for sale'                 20,531     16,682 
============================================================================= 
  - Brazil                                                                             5     19,357     15,094 
============================================================================= 
  - other                                                                                     1,174      1,588 
=============================================================================             ---------  --------- 
 
 
Combined customer deposits                                                                1,311,489  1,306,268 
=============================================================================             ---------  --------- 
 

For footnote, see page 59.

Movement from 31 December 2015 to 30 June 2016

Total reported assets of $2.6tn were 8% higher than at 31 December 2015 on a reported basis and 11% higher on a constant currency basis. This was driven by increased derivative assets and trading assets, notably settlement accounts.

Our ratio of customer advances to customer accounts was 69%. Loans and advances to customers fell on a reported basis while customer accounts increased on a reported basis. These changes included:

 
 
--  adverse currency translation movement of $24bn on loans and advances to customers and $31bn 
     on customer accounts; and 
 
 
 
--  an $8bn reduction in corporate overdraft and current account balances relating to a small 
     number of clients in our Global Liquidity and Cash Management business in the UK who settled 
     their overdraft and deposit balances on a net basis, with these customers increasing the frequency 
     with which they settled their positions. 
 

Excluding these movements, customer lending decreased by $5bn, partly due to reductions in our legacy portfolios.

Assets

Derivative assets increased by $81bn or 28%, driven by valuation movements in interest rate contracts, reflecting downward shifts in major yield curves, notably in the UK and to a lesser extent in France.

Trading assets increased by $55bn, driven by higher settlement account balances in Europe and North America and an increase in holding of debt securities, primarily in Asia. By contrast, Europe was affected by decreases in equity securities.

Reverse repurchase agreements - non-trading increased by $42bn, notably in Europe and North America, the latter reflecting deployment of surplus liquidity from cash balances.

Loans and advances to customers decreased by $37bn on a reported basis, driven by Europe and to a lesser extent Asia. This included:

HSBC HOLDINGS PLC

32

Financial summary (continued)

 
 
--  adverse currency translation movements of $24bn; and 
 
 
 
--  an $8bn reduction in corporate overdraft balances in Europe, with a corresponding fall in 
     corporate customer accounts. 
 

Excluding these factors, customer lending balances decreased by $5bn, partly reflecting our strategic focus on reducing our legacy portfolio. In North America this included a $5.7bn transfer to 'Assets held for sale' of US first lien mortgage balances in RBWM. We disposed of most of these transferred loans during 1H16.

Balances also fell in Asia by $6bn, although they stabilised in the second quarter of 2016. Lending fell in CMB by $5bn, notably in Hong Kong and Singapore, particularly in trade lending. The fall in Hong Kong reflected weakened client demand and corporates in mainland China reverting back to mainland China from Hong Kong for financing as interest rates between Hong Kong and mainland China narrowed. By contrast, balances increased in Europe by $8bn, primarily reflecting higher term lending in CMB and GB&M, notably in the UK.

Liabilities

Derivative liabilities increased by $87bn in line with the movements of derivative assets as the underlying risk was broadly matched.

Trading liabilities increased by $47bn, primarily in Europe and North America, partly driven by an increase in settlement accounts.

Customer accounts were broadly in line with balances at 31 December 2015 and included:

 
 
--  adverse currency translation movements of $31bn; and 
 
 
 
--  an $8bn reduction in corporate current account balances, in line with a fall in corporate 
     overdraft positions. 
 

Excluding these factors, customer accounts grew by $38bn, mainly in the UK, driven by increases in GB&M and RBWM, and in Hong Kong, notably in RBWM.

Equity

Total shareholders' equity was broadly unchanged. The effects of profits generated in the period and the issue of new contingent convertible securities of $2.0bn were broadly offset by the effects of dividends paid and an increase in accumulated foreign exchange losses. Movements in the foreign exchange reserves reflected the depreciation of sterling against the US dollar, although this was partly offset by appreciation in other currencies, including the euro and Canadian dollar.

Customer accounts by country

 
 
 
                                          At 
                                ---------------------- 
                                   30 Jun     31 Dec 
                                     2016       2015 
                                       $m         $m 
 
Europe                            482,992    497,876 
============================== 
  - UK                            383,958    404,084 
============================== 
  - France                         39,896     35,635 
============================== 
  - Germany                        16,141     13,873 
============================== 
  - Switzerland                     8,820     10,448 
============================== 
  - other                          34,177     33,836 
==============================  ---------  --------- 
 
Asia                              610,200    598,620 
============================== 
  - Hong Kong                     433,136    421,538 
============================== 
  - Australia                      18,655     17,703 
============================== 
  - India                          12,159     11,795 
============================== 
  - Indonesia                       5,738      5,366 
============================== 
  - Mainland China                 41,897     46,177 
============================== 
  - Malaysia                       14,233     14,114 
============================== 
  - Singapore                      43,578     41,307 
============================== 
  - Taiwan                         12,321     11,812 
============================== 
  - other                          28,483     28,808 
==============================  ---------  --------- 
 
Middle East and North Africa 
 (excluding Saudi Arabia)          35,094     36,468 
============================== 
  - Egypt                           6,255      6,602 
============================== 
  - United Arab Emirates           17,641     18,281 
============================== 
  - other                          11,198     11,585 
==============================  ---------  --------- 
 
North America                     142,152    135,152 
============================== 
  - US                             90,646     86,322 
============================== 
  - Canada                         42,355     39,727 
============================== 
  - other                           9,151      9,103 
==============================  ---------  --------- 
 
Latin America                      20,520     21,470 
============================== 
  - Mexico                         14,854     15,798 
============================== 
  - other                           5,666      5,672 
==============================  ---------  --------- 
 
 
At end of period                1,290,958  1,289,586 
==============================  ---------  --------- 
 

Risk-weighted assets

Risk-weighted assets totalled $1,082bn at 30 June 2016, a decrease of $21bn or 2% from 31 December 2015, reflecting targeted RWA initiatives and the effects of currency translation, partly offset by balance sheet growth and RWA increases as a result of credit quality deterioration. In 1H16, RWA initiatives resulted in a reduction of $48bn and included asset sales in the GB&M legacy and US CML run-off portfolios, reduced exposures, refined calculations and process improvements.

HSBC HOLDINGS PLC

33

Reconciliation of RoRWA measures

 
 
 
 
Performance management 
 We target a return on average ordinary shareholders' equity of greater than 10%. For internal 
 management purposes we monitor global businesses and geographical regions by pre-tax return 
 on average risk-weighted assets ('RoRWA'), a metric which combines return on equity and regulatory 
 capital efficiency objectives. This metric is calibrated against return on equity ('ROE') 
 and capital requirements to ensure that we are best placed to achieve capital strength and 
 business profitability combined with regulatory capital efficiency objectives. 
 
 

In addition to the pre-tax return on average risk-weighted assets ('RoRWA'), we measure our performance internally using the non-GAAP measure of adjusted RoRWA, which is adjusted profit before tax as a percentage of average risk-weighted assets adjusted for the effects of foreign currency translation differences and significant items. Excluded from adjusted RoRWA are certain items which distort period-on-period performance as explained on page 18.

Reconciliation of adjusted RoRWA

 
 
 
                                                      Half-year to 30 Jun 2016 
                                                   ------------------------------ 
                                                    Pre-tax   Average 
                                                     return      RWAs  RoRWA(6) 
                                        Footnotes        $m       $bn         % 
 
Reported                                              9,714     1,100       1.8 
======================================             --------  -------- 
 
Adjusted                                        6    10,795     1,100       2.0 
====================================== 
 
 
 
 
                                   Half-year to 30 Jun 2015              Half-year to 31 Dec 2015 
                              -----------------------------------  ------------------------------------- 
                                 Pre-tax  Average                     Pre-tax  Average 
                                  return     RWAs        RoRWA(6)      return     RWAs        RoRWA(6) 
                   Footnotes          $m      $bn               %          $m      $bn               % 
 
Reported                          13,628    1,208             2.3       5,239    1,147             0.9 
=================             ----------  -------                  ----------  ------- 
 
Adjusted                   6      12,550    1,163             2.2       7,161    1,129             1.3 
================= 
 

For footnote, see page 59.

Reconciliation of reported and adjusted average risk-weighted assets

 
 
 
                                                                Half-year to 
                                            ---------------------------------------------------- 
                                            30 Jun  30 Jun            30 Jun  31 Dec 
                                              2016    2015   Change     2016    2015   Change 
                                 Footnotes     $bn     $bn        %      $bn     $bn        % 
 
Average reported RWAs                        1,100   1,208       (9)   1,100   1,147       (4) 
=============================== 
Currency translation adjustment          7       -     (40)                -     (18) 
=============================== 
Acquisitions, disposals and 
 dilutions                                       -      (5)                -       - 
===============================             ------  ------            ------  ------ 
 
Average adjusted RWAs                        1,100   1,163       (5)   1,100   1,129       (3) 
===============================             ------  ------            ------  ------ 
 

For footnote, see page 59.

HSBC HOLDINGS PLC

34

Global businesses

 
 
 
Global businesses 
 
Summary                                35 
===================================== 
Retail Banking and Wealth Management   36 
===================================== 
Commercial Banking                     38 
===================================== 
Global Banking and Markets             39 
===================================== 
Global Private Banking                 41 
===================================== 
Other                                  42 
===================================== 
 
 

Summary

HSBC reviews operating activity on a number of bases, including by geographical region and by global business.

We present global businesses followed by geographical regions because certain strategic themes, business initiatives and trends affect more than one geographical region.

 
 
 
 
Basis of preparation 
 The results of our global businesses are presented in accordance with the accounting policies 
 used in the preparation of HSBC's consolidated financial statements. Our operations are closely 
 integrated and, accordingly, the presentation of global business data includes internal allocations 
 of certain items of income and expense. These allocations include the costs of some support 
 services and global functions to the extent that they can be meaningfully attributed to operational 
 business lines. While such allocations have been made on a systematic and consistent basis, 
 they necessarily involve a degree of subjectivity. Those costs which are not allocated to 
 global businesses are included in 'Other'. 
 Where relevant, income and expense amounts presented include the results of inter-segment 
 funding as well as inter-company and inter-business line transactions. All such transactions 
 are undertaken on arm's length terms. 
 The expense of the UK bank levy is included in the Europe geographical region as we regard 
 the levy as a cost of being headquartered in the UK. For the purposes of the segmentation 
 by global businesses, the cost of the levy is included in 'Other'. 
 
 

Profit/(loss) before tax

 
 
 
                                                                Half-year to 
                                      ---------------------  ------------------  ----------------------- 
                                                  30 Jun                 30 Jun 
                                                  2016                   2015             31 Dec 2015 
                           Footnotes       $m            %         $m         %        $m           % 
 
Retail Banking and Wealth 
 Management                             2,382         24.5      3,362      24.7     1,605        30.6 
========================= 
Commercial Banking                      4,304         44.3      4,523      33.2     3,450        65.9 
========================= 
Global Banking and 
 Markets                                4,006         41.2      4,754      34.9     3,156        60.2 
========================= 
Global Private Banking                   (557)        (5.7)       180       1.3       164         3.1 
========================= 
Other                              8     (421)        (4.3)       809       5.9    (3,136)      (59.8) 
=========================             -------      -------   --------  --------  --------      ------ 
 
                                        9,714        100.0     13,628     100.0     5,239       100.0 
                                      -------      -------   --------  --------  --------      ------ 
 

Total assets(9)

 
 
 
                                                             At 
                                             30 Jun 2016          31 Dec 2015 
                                                 $m       %          $m       % 
 
Retail Banking and Wealth Management        470,245    18.0     473,284    19.6 
======================================== 
Commercial Banking                          355,388    13.6     365,290    15.2 
======================================== 
Global Banking and Markets                1,873,474    71.8   1,616,704    67.1 
======================================== 
Global Private Banking                       79,068     3.0      81,448     3.4 
======================================== 
Other                                       179,853     7.0     147,417     6.1 
======================================== 
Intra-HSBC items                           (349,879)  (13.4)   (274,487)  (11.4) 
========================================  ---------   -----   ---------   ----- 
 
                                          2,608,149   100.0   2,409,656   100.0 
                                          ---------   -----   ---------   ----- 
 

Risk-weighted assets

 
 
 
                                                         At 
                                           30 Jun 2016      31 Dec 2015 
                                              $bn      %      $bn      % 
 
Retail Banking and Wealth Management        176.1   16.3    189.5   17.2 
======================================== 
Commercial Banking                          414.8   38.3    421.0   38.2 
======================================== 
Global Banking and Markets                  437.1   40.4    440.6   39.9 
======================================== 
Global Private Banking                       18.5    1.7     19.3    1.7 
======================================== 
Other                                        35.7    3.3     32.6    3.0 
========================================  -------  -----  -------  ----- 
 
                                          1,082.2  100.0  1,103.0  100.0 
                                          -------  -----  -------  ----- 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

35

Retail Banking and Wealth Management

RBWM provides banking and wealth management services for our personal customers to help them secure their future prosperity and realise their ambitions.

 
 
 
                                                                                 Principal RBWM consists of 
                                                                         ------------------------------------------ 
                                                  US 
                                Total        run-off      Principal         Banking       Insurance        Asset 
                                 RBWM      portfolio       RBWM(10)      operations   manufacturing   management 
                    Footnotes      $m             $m             $m              $m              $m           $m 
Half-year to 30 
Jun 2016 
Net interest 
 income                         7,724            388          7,336           6,433             901            2 
================== 
Net fee 
 income/(expense)               2,576             (2)         2,578           2,418            (304)         464 
================== 
Other 
 income/(loss)             11     817            (19)           836             769              46           21 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Net operating 
 income                    12  11,117            367         10,750           9,620             643          487 
================== 
LICs                       13  (1,120)           (97)        (1,023)         (1,023)              -            - 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Net operating 
 income                         9,997            270          9,727           8,597             643          487 
================== 
Total operating 
 expenses                      (7,808)          (846)        (6,962)         (6,413)           (210)        (339) 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Operating 
 profit/(loss)                  2,189           (576)         2,765           2,184             433          148 
================== 
Income from 
 associates                14     193              -            193             173              14            6 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Profit/(loss) 
 before tax                     2,382           (576)         2,958           2,357             447          154 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
RoRWA                             2.6%          (3.3)%          4.0% 
================== 
 
Half-year to 30 
Jun 2015 
Net interest 
 income                         8,054            536          7,518           6,664             850            4 
================== 
Net fee 
 income/(expense)               3,334             (2)         3,336           3,079            (282)         539 
================== 
Other income               11   1,054             46          1,008             397             595           16 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Net operating 
 income                    12  12,442            580         11,862          10,140           1,163          559 
================== 
LICs                       13    (934)           (47)          (887)           (887)              -            - 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Net operating 
 income                        11,508            533         10,975           9,253           1,163          559 
================== 
Total operating 
 expenses                      (8,354)          (688)        (7,666)         (7,076)           (219)        (371) 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Operating 
 profit/(loss)                  3,154           (155)         3,309           2,177             944          188 
================== 
Income from 
 associates                14     208              -            208             178              11           19 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Profit/(loss) 
 before tax                     3,362           (155)         3,517           2,355             955          207 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
RoRWA                             3.3%          (0.6)%          4.6% 
================== 
 
Half-year to 31 
Dec 2015 
Net interest 
 income                         7,872            497          7,375           6,463             907            5 
================== 
Net fee 
 income/(expense)               2,884             (2)         2,886           2,647            (278)         517 
================== 
Other 
 income/(loss)             11     318           (249)           567             479              85            3 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Net operating 
 income                    12  11,074            246         10,828           9,589             714          525 
================== 
LICs                       13  (1,005)           (15)          (990)           (990)              -            - 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Net operating 
 income                        10,069            231          9,838           8,599             714          525 
================== 
Total operating 
 expenses                      (8,666)          (696)        (7,970)         (7,383)           (213)        (374) 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Operating 
 profit/(loss)                  1,403           (465)         1,868           1,216             501          151 
================== 
Income from 
 associates                14     202              -            202             180              13            9 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
Profit/(loss) 
 before tax                     1,605           (465)         2,070           1,396             514          160 
==================             ------      ---------      ---------      ----------   -------------   ---------- 
 
RoRWA                             1.6%          (2.0)%          2.7% 
================== 
 

For footnotes, see page 59.

RBWM comprises the Principal RBWM business and the US run-off portfolio. We believe that highlighting Principal RBWM (and its constituent business streams, Banking Operations, Insurance Manufacturing and Asset Management) allows management to identify more readily the causes of material changes from year to year in the

ongoing business and to assess the factors and trends that are expected to have a material effect on the business in future years.

Insurance manufacturing for RBWM excludes other global businesses which contribute net operating income of $199m in 1H16 (1H15: $189m; 2H15: $97m) and profit before tax of

HSBC HOLDINGS PLC

36

Global businesses (continued)

$159m (1H15: $144m); 2H15: $57m) to overall insurance manufacturing. In 1H16, insurance manufacturing net operating income for RBWM included $575m within Wealth

Management (1H15: $1,080m) and $58m within other products (1H15: $83m).

   Principal RBWM(10)    performance 

Management view of adjusted revenue(12)

 
 
 
                                                           Half-year to 
                                                     ------------------------ 
                                                     30 Jun  30 Jun  31 Dec 
                                                       2016    2015    2015 
                                          Footnotes      $m      $m      $m 
 
Current accounts, savings and deposits                2,856   2,633   2,668 
======================================== 
Wealth Management products                            2,578   3,485   2,620 
======================================== 
  - investment distribution                           1,516   1,909   1,522 
======================================== 
  - life insurance manufacturing                        575   1,038     581 
======================================== 
  - asset management                                    487     538     517 
======================================== 
 
Personal lending                                      4,668   4,704   4,731 
======================================== 
  - mortgages                                         1,349   1,372   1,390 
======================================== 
  - credit cards                                      1,767   1,850   1,811 
======================================== 
  - other personal lending                            1,552   1,482   1,530 
======================================== 
 
Other                                                   321     295     497 
======================================== 
 
Net operating income                             12  10,423  11,116  10,516 
========================================             ------  ------  ------ 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

37

Commercial Banking

CMB serves approximately two million customers in 55 countries and territories. Our customers range from small enterprises focused primarily on their domestic markets through to corporates operating globally.

 
 
 
                                                              Half-year to 
                                                   ---------------------------------- 
                                                   30 Jun      30 Jun      31 Dec 
                                                     2016        2015        2015 
                                        Footnotes      $m          $m          $m 
 
Net interest income                                 4,809       4,892       4,967 
====================================== 
Net fee income                                      1,965       2,168       2,022 
====================================== 
Other income                                   11     735         474         347 
======================================             ------      ------      ------ 
 
Net operating income                           12   7,509       7,534       7,336 
====================================== 
 
LICs                                           13    (833)       (511)     (1,259) 
======================================             ------      ------      ------ 
 
Net operating income                                6,676       7,023       6,077 
====================================== 
 
Total operating expenses                           (3,143)     (3,321)     (3,423) 
======================================             ------      ------      ------ 
 
Operating profit                                    3,533       3,702       2,654 
====================================== 
 
Income from associates                         14     771         821         796 
======================================             ------      ------      ------ 
 
Profit before tax                                   4,304       4,523       3,450 
======================================             ------      ------      ------ 
 
RoRWA                                                 2.1%        2.1%        1.6% 
====================================== 
 

Management view of adjusted revenue(12)

 
 
 
                                                                          Half-year to 
                                                                    ------------------------ 
                                                                    30 Jun  30 Jun  31 Dec 
                                                                      2016    2015    2015 
                                                         Footnotes      $m      $m      $m 
 
Global Trade and Receivables Finance                                 1,071   1,167   1,156 
======================================================= 
Credit and Lending                                                   2,821   2,747   2,864 
======================================================= 
Global Liquidity and Cash Management                                 2,332   2,215   2,302 
======================================================= 
Markets products, Insurance and Investments and Other                1,055   1,012     818 
=======================================================             ------  ------  ------ 
 
Net operating income                                            12   7,279   7,141   7,140 
=======================================================             ------  ------  ------ 
 

For footnotes, see page 59. For details of significant items, see pages 53 to 58.

HSBC HOLDINGS PLC

38

Global businesses (continued)

Global Banking and Markets

GB&M supports major government, corporate and institutional clients worldwide in achieving their long-term strategic goals through tailored and innovative solutions.

 
 
 
                                                                                     GB&M 
                                                    Total                   client-facing 
                                                     GB&M      Legacy             and BSM 
                                        Footnotes      $m          $m                  $m 
Half-year to 30 Jun 2016 
 
Net interest income                                 3,434           2               3,432 
====================================== 
Net fee income/(expense)                            1,641          (3)              1,644 
====================================== 
Net trading income/(expense)                    1   4,760         (65)              4,825 
====================================== 
Other expense                                  11    (922)        (34)               (888) 
======================================             ------      ------      -------------- 
 
Net operating income/(loss)                    12   8,913        (100)              9,013 
====================================== 
 
LICs                                           13    (425)         12                (437) 
======================================             ------      ------      -------------- 
 
Net operating income/(loss)                         8,488         (88)              8,576 
====================================== 
 
Total operating expenses                           (4,749)        (38)             (4,711) 
======================================             ------      ------      -------------- 
 
Operating profit/(loss)                             3,739        (126)              3,865 
======================================                         ------      -------------- 
                                                                                        - 
Income from associates                         14     267 
======================================             ------ 
 
Profit before tax                                   4,006 
======================================             ------ 
 
RoRWA                                                 1.8%       (1.0)%               2.0% 
====================================== 
 
Half-year to 30 Jun 2015 
 
Net interest income                                 3,629         114               3,515 
====================================== 
Net fee income/(expense)                            1,711          (6)              1,717 
====================================== 
Net trading income/(expense)                    1   3,743          (1)              3,744 
====================================== 
Other income/(expense)                         11   1,178         (10)              1,188 
======================================             ------      ------      -------------- 
 
Net operating income                           12  10,261          97              10,164 
====================================== 
 
LICs                                           13      11          15                  (4) 
======================================             ------      ------      -------------- 
 
Net operating income                               10,272         112              10,160 
====================================== 
 
Total operating expenses                           (5,790)        (41)             (5,749) 
======================================             ------      ------      -------------- 
 
Operating profit                                    4,482          71               4,411 
======================================                         ------      -------------- 
 
Income from associates                         14     272 
======================================             ------ 
 
Profit before tax                                   4,754 
======================================             ------ 
 
RoRWA                                                 1.9%        0.4%                2.0% 
====================================== 
 
Half-year to 31 Dec 2015 
 
Net interest income                                 3,302          13               3,289 
====================================== 
Net fee income/(expense)                            1,664          (5)              1,669 
====================================== 
Net trading income                              1   3,426          10               3,416 
====================================== 
Other expense                                  11    (420)        (54)               (366) 
======================================             ------      ------      -------------- 
 
Net operating income/(loss)                    12   7,972         (36)              8,008 
====================================== 
 
LICs                                           13     (11)         22                 (33) 
======================================             ------      ------      -------------- 
 
Net operating income/(loss)                         7,961         (14)              7,975 
====================================== 
 
Total operating expenses                           (5,044)        (62)             (4,982) 
======================================             ------      ------      -------------- 
 
Operating profit/(loss)                             2,917         (76)              2,993 
======================================                         ------      -------------- 
 
Income from associates                         14     239 
======================================             ------ 
 
Profit before tax                                   3,156 
======================================             ------ 
 
RoRWA                                                 1.4%       (0.5)%               1.5% 
====================================== 
 

For footnotes, see page 59.

The GB&M client-facing and Balance Sheet Management ('BSM') businesses measure excludes the effects of the legacy credit portfolio and income from associates. This allows GB&M management to identify more readily the cause of material changes from year to year in the ongoing businesses and assess the factors and trends that are expected to have a material effect on the businesses in future years.

HSBC HOLDINGS PLC

39

Management view of adjusted revenue(12)

 
 
 
                                                          Half-year to 
                                                   --------------------------- 
                                                   30 Jun   30 Jun   31 Dec 
                                                     2016     2015     2015 
                                        Footnotes      $m       $m       $m 
 
Global Markets                                      3,588    4,188    2,448 
====================================== 
  - Legacy credit                                    (100)      96      (32) 
====================================== 
  - Credit                                            506      478      164 
====================================== 
  - Rates                                           1,116      961      612 
====================================== 
  - Foreign Exchange                                1,491    1,584    1,227 
====================================== 
  - Equities                                          575    1,069      477 
======================================             ------   ------   ------ 
 
Global Banking                                      1,776    1,813    1,859 
====================================== 
Global Liquidity and Cash Management                  924      854      876 
====================================== 
Securities Services                                   786      835      818 
====================================== 
Global Trade and Receivables Finance                  352      349      344 
====================================== 
Balance Sheet Management                            1,448    1,506    1,312 
====================================== 
Principal Investments                                  (5)     125      109 
====================================== 
Other                                          16     (87)     (16)     (57) 
======================================             ------   ------   ------ 
 
Net operating income                           12   8,782    9,654    7,709 
======================================             ------   ------   ------ 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

40

Global businesses (continued)

Global Private Banking

GPB serves high net worth individuals and families with complex and international needs within the Group's priority markets.

 
 
 
                                                              Half-year to 
                                                   ---------------------------------- 
                                                   30 Jun      30 Jun      31 Dec 
                                                     2016        2015        2015 
                                        Footnotes      $m          $m          $m 
 
Net interest income                                   395         454         416 
====================================== 
Net fee income                                        386         527         432 
====================================== 
Other income                                   11     192         196         147 
======================================             ------      ------      ------ 
 
Net operating income                           12     973       1,177         995 
====================================== 
 
LICs                                           13      11          (5)         (7) 
======================================             ------      ------      ------ 
 
Net operating income                                  984       1,172         988 
====================================== 
 
Total operating expenses                           (1,545)     (1,001)       (831) 
======================================             ------      ------      ------ 
 
Operating (loss)/profit                              (561)        171         157 
====================================== 
 
Income from associates                         14       4           9           7 
======================================             ------      ------      ------ 
 
Profit before tax                                    (557)        180         164 
======================================             ------      ------      ------ 
 
RoRWA                                                (5.9)%       1.8%        1.6% 
====================================== 
 

Client assets(17)

 
 
 
                                                  Half-year to 
                                           --------------------------- 
                                           30 Jun   30 Jun   31 Dec 
                                             2016     2015     2015 
                                              $bn      $bn      $bn 
 
At beginning of period                        349      365      370 
========================================= 
Net new money                                  (7)      (1)       1 
========================================= 
  Of which: areas targeted for growth           5        7        7 
=========================================  ------   ------   ------ 
 
Value change                                   (6)       9       (8) 
========================================= 
Exchange and other                            (19)      (3)     (14) 
=========================================  ------   ------   ------ 
 
At end of period                              317      370      349 
=========================================  ------   ------   ------ 
 

For footnotes, see page 59. For details of significant items, see pages 53 to 58.

HSBC HOLDINGS PLC

41

Other(8)

'Other' contains the results of HSBC's holding company and financing operations, central support and functional costs with associated recoveries, unallocated investment activities, centrally held investment companies, certain property transactions, movements in fair value of own debt and the UK bank levy.

 
 
 
                                                                                        Half-year to 
                                                                                 --------------------------- 
                                                                                 30 Jun   30 Jun   31 Dec 
                                                                                   2016     2015     2015 
                                                                      Footnotes      $m       $m       $m 
 
Net interest expense                                                               (392)    (397)    (313) 
==================================================================== 
Net fee income/(expense)                                                             18      (15)     (22) 
==================================================================== 
Net trading expense                                                                (146)    (123)     (69) 
==================================================================== 
 
Changes in fair value of long-term debt issued and related 
 derivatives                                                                        270    1,324     (461) 
==================================================================== 
Changes in other financial instruments designated at fair value                   1,320     (661)     722 
====================================================================             ------   ------   ------ 
Net income from financial instruments designated at fair value                    1,590      663      261 
==================================================================== 
Other income                                                                      2,959    4,559    3,060 
====================================================================             ------   ------   ------ 
 
Net operating income                                                              4,029    4,687    2,917 
==================================================================== 
 
Total operating expenses                                                         (4,453)  (3,879)  (6,054) 
====================================================================             ------   ------   ------ 
 
Operating (loss)/profit                                                            (424)     808   (3,137) 
==================================================================== 
 
Income from associates                                                       14       3        1        1 
====================================================================             ------   ------   ------ 
 
(Loss)/profit before tax                                                           (421)     809   (3,136) 
====================================================================             ------   ------   ------ 
 

For footnotes, see page 59. For details of significant items, see pages 53 to 58.

HSBC HOLDINGS PLC

42

Global businesses (continued)

Analysis by global business

HSBC profit/(loss) before tax and balance sheet data

 
 
 
                                                                       Half-year to 30 Jun 2016 
                                   ------------------------------------------------------------------------------------------------ 
                                       Retail                   Global 
                                      Banking                  Banking    Global                              Inter- 
                                   and Wealth   Commercial         and   Private                             segment 
                                   Management      Banking     Markets   Banking         Other(8)    elimination(18)       Total 
                        Footnotes          $m           $m          $m        $m           $m                     $m          $m 
Profit/(loss) before 
tax 
 
Net interest 
 income/(expense)                       7,724        4,809       3,434       395         (392)                  (210)     15,760 
====================== 
 
Net fee income                          2,576        1,965       1,641       386           18                      -       6,586 
====================== 
 
Trading 
 income/(expense) 
 excluding net 
 interest income                           73          286       4,228       157         (150)                     -       4,594 
====================== 
Net interest 
 (expense)/income on 
 trading activities                        (8)          (8)        532         -            4                    210         730 
======================             ----------   ----------   ---------    ------   ----------  ----  ---------------   --------- 
 
Net trading 
 income/(expense)               1          65          278       4,760       157         (146)                   210       5,324 
====================== 
Net income/(expense) 
 from financial 
 instruments 
 designated at fair 
 value                                    185           74      (1,283)       (5)       1,590                      -         561 
====================== 
Gains less losses from 
 financial investments                    383          264         307        11            -                      -         965 
====================== 
Dividend income                            10            8          16         3           27                      -          64 
====================== 
Net insurance premium 
 income/(expense)                       4,748          601           2         8           (3)                     -       5,356 
====================== 
Other operating 
 income/(expense)                         503          214          36        24        2,937                 (3,070)        644 
======================             ----------   ----------   ---------   -------   ----------  ----  ---------------   --------- 
 
Total operating 
 income/(expense)                      16,194        8,213       8,913       979        4,031                 (3,070)     35,260 
====================== 
 
Net insurance claims           19      (5,077)        (704)          -        (6)          (3)                     -      (5,790) 
======================             ----------   ----------   ---------   -------   ----------   ---  ---------------   --------- 
 
Net operating 
 income/(expense)              12      11,117        7,509       8,913       973        4,028                 (3,070)     29,470 
====================== 
 
Loan impairment 
 (charges)/recoveries 
 and other credit risk 
 provisions                            (1,120)        (833)       (425)       11            1                      -      (2,366) 
======================             ----------   ----------   ---------   -------   ----------  ----  ---------------   --------- 
 
Net operating 
 income/(expense)                       9,997        6,676       8,488       984        4,029                 (3,070)     27,104 
====================== 
 
Employee expenses              20      (2,353)      (1,117)     (1,785)     (309)      (3,790)                     -      (9,354) 
====================== 
Other operating 
 expenses                              (5,455)      (2,026)     (2,964)   (1,236)        (663)                 3,070      (9,274) 
======================             ----------   ----------   ---------   -------   ----------   ---  ---------------   --------- 
 
Total operating 
 (expense)/income                      (7,808)      (3,143)     (4,749)   (1,545)      (4,453)                 3,070     (18,628) 
======================             ----------   ----------   ---------   -------   ----------   ---  ---------------   --------- 
 
Operating 
 profit/(loss)                          2,189        3,533       3,739      (561)        (424)                     -       8,476 
====================== 
 
Share of profit in 
 associates and joint 
 ventures                                 193          771         267         4            3                      -       1,238 
======================             ----------   ----------   ---------    ------   ----------  ----  ---------------   --------- 
 
Profit/(loss) before 
 tax                                    2,382        4,304       4,006      (557)        (421)                     -       9,714 
======================             ----------   ----------   ---------   -------   ----------   ---  ---------------   --------- 
 
                                            %            %           %         %            %                                  % 
Share of HSBC's profit 
 before tax                              24.5         44.3        41.2      (5.7)        (4.3)                             100.0 
====================== 
Cost efficiency ratio                    70.2         41.9        53.3     158.8        110.6                               63.2 
====================== 
 
Balance sheet data              9 
                                           $m           $m          $m        $m           $m                     $m          $m 
Loans and advances to 
 customers (net)                      326,699      298,641     219,186    39,923        3,107                            887,556 
====================== 
Reported in held for 
 sale                                   7,304        8,472       4,279       623           33                             20,711 
====================== 
 
Total assets                          470,245      355,388   1,873,474    79,068      179,853               (349,879)  2,608,149 
====================== 
Customer accounts                     588,864      347,842     274,095    77,981        2,176                          1,290,958 
====================== 
Reported in held for 
 sale                                   9,749        4,446       3,467     2,869            -                             20,531 
====================== 
 

HSBC HOLDINGS PLC

43

HSBC profit/(loss) before tax and balance sheet data (continued)

 
 
 
                                                                   Half-year to 30 Jun 2015 
                                   ----------------------------------------------------------------------------------------- 
                                       Retail                   Global 
                                      Banking                  Banking    Global                       Inter- 
                                   and Wealth   Commercial         and   Private                      segment 
                                   Management      Banking     Markets   Banking   Other(8)   elimination(18)       Total 
                        Footnotes          $m           $m          $m        $m         $m                $m          $m 
Profit/(loss) before 
tax 
 
Net interest 
 income/(expense)                       8,054        4,892       3,629       454       (397)             (188)     16,444 
====================== 
 
Net fee 
 income/(expense)                       3,334        2,168       1,711       527        (15)                -       7,725 
====================== 
 
Trading 
 income/(expense) 
 excluding net 
 interest income                          295          308       2,880       175       (138)                -       3,520 
====================== 
Net interest 
 (expense)/income on 
 trading activities                        (5)          (7)        863        (1)        15               188       1,053 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Net trading 
 income/(expense)               1         290          301       3,743       174       (123)              188       4,573 
====================== 
Net income from 
 financial instruments 
 designated at fair 
 value                                  1,237          128         638         -        663                 -       2,666 
====================== 
Gains less losses from 
 financial investments                     51           27         402        24      1,370                 -       1,874 
====================== 
Dividend income                            11           10          17         4         26                 -          68 
====================== 
Net insurance premium 
 income                                 4,950          624           3        30          -                 -       5,607 
====================== 
Other operating 
 income/(expense)                         609          100         120         2      3,163            (3,158)        836 
======================             ----------   ----------   ---------    ------   --------   ---------------   --------- 
 
Total operating 
 income/(expense)                      18,536        8,250      10,263     1,215      4,687            (3,158)     39,793 
====================== 
 
Net insurance claims           19      (6,094)        (716)         (2)      (38)         -                 -      (6,850) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Net operating 
 income/(expense)              12      12,442        7,534      10,261     1,177      4,687            (3,158)     32,943 
====================== 
 
Loan impairment 
 (charges)/recoveries 
 and other credit risk 
 provisions                              (934)        (511)         11        (5)         -                 -      (1,439) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Net operating 
 income/(expense)                      11,508        7,023      10,272     1,172      4,687            (3,158)     31,504 
====================== 
 
Employee expenses              20      (2,571)      (1,171)     (1,994)     (350)    (3,955)                -     (10,041) 
====================== 
Other operating 
 expenses                              (5,783)      (2,150)     (3,796)     (651)        76             3,158      (9,146) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Total operating 
 (expense)/income                      (8,354)      (3,321)     (5,790)   (1,001)    (3,879)            3,158     (19,187) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Operating profit                        3,154        3,702       4,482       171        808                 -      12,317 
====================== 
 
Share of profit in 
 associates and joint 
 ventures                                 208          821         272         9          1                 -       1,311 
======================             ----------   ----------   ---------    ------   --------   ---------------   --------- 
 
Profit before tax                       3,362        4,523       4,754       180        809                 -      13,628 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
                                            %            %           %         %          %                             % 
Share of HSBC's profit 
 before tax                              24.7         33.2        34.9       1.3        5.9                         100.0 
====================== 
Cost efficiency ratio                    67.1         44.1        56.4      85.0       82.8                          58.2 
====================== 
 
Balance sheet data              9 
                                           $m           $m          $m        $m         $m                $m          $m 
Loans and advances to 
 customers (net)                      352,189      310,256     244,321    44,242      2,977                       953,985 
====================== 
Reported in held for 
 sale                                   6,640       10,325       4,016        43          -                        21,024 
====================== 
 
Total assets                          497,199      378,641   1,790,461    85,740    167,946          (348,274)  2,571,713 
====================== 
Customer accounts                     589,715      362,069     299,181    82,878      1,957                     1,335,800 
====================== 
Reported in held for 
 sale                                   9,549        4,694       3,438     1,751          -                        19,432 
====================== 
 

HSBC HOLDINGS PLC

44

Global businesses (continued)

 
 
 
                                                                   Half-year to 31 Dec 2015 
                                   ----------------------------------------------------------------------------------------- 
                                       Retail                   Global 
                                      Banking                  Banking    Global                       Inter- 
                                   and Wealth   Commercial         and   Private                      segment 
                                   Management      Banking     Markets   Banking   Other(8)   elimination(18)       Total 
                        Footnotes          $m           $m          $m        $m         $m                $m          $m 
Profit/(loss) before 
tax 
 
Net interest 
 income/(expense)                       7,872        4,967       3,302       416       (313)             (157)     16,087 
====================== 
 
Net fee 
 income/(expense)                       2,884        2,022       1,664       432        (22)                -       6,980 
====================== 
 
Trading 
 income/(expense) 
 excluding net 
 interest income                          245          263       2,834       152        (66)                -       3,428 
====================== 
Net interest 
 (expense)/income on 
 trading activities                       (14)          (9)        592        (1)        (3)              157         722 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Net trading 
 income/(expense)               1         231          254       3,426       151        (69)              157       4,150 
====================== 
Net (expense)/income 
 from financial 
 instruments 
 designated at fair 
 value                                   (681)         (18)       (696)        -        261                 -      (1,134) 
====================== 
Gains less losses from 
 financial investments                     17           10         196        (1)       (28)                -         194 
====================== 
Dividend income                            12            6          23         7          7                 -          55 
====================== 
Net insurance premium 
 income/(expense)                       4,254          482           2        12         (2)                -       4,748 
====================== 
Other operating 
 income/(expense)                         363          152          57         1      3,083            (3,437)        219 
======================             ----------   ----------   ---------    ------   --------   ---------------   --------- 
 
Total operating 
 income/(expense)                      14,952        7,875       7,974     1,018      2,917            (3,437)     31,299 
====================== 
 
Net insurance claims           19      (3,878)        (539)         (2)      (23)         -                 -      (4,442) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Net operating 
 income/(expense)              12      11,074        7,336       7,972       995      2,917            (3,437)     26,857 
====================== 
 
Loan impairment 
 (charges)/recoveries 
 and other credit risk 
 provisions                            (1,005)      (1,259)        (11)       (7)         -                 -      (2,282) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Net operating 
 income/(expense)                      10,069        6,077       7,961       988      2,917            (3,437)     24,575 
====================== 
 
Employee expenses              20      (2,395)      (1,272)     (1,741)     (304)    (4,147)                -      (9,859) 
====================== 
Other operating 
 expenses                              (6,271)      (2,151)     (3,303)     (527)    (1,907)            3,437     (10,722) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Total operating 
 (expense)/income                      (8,666)      (3,423)     (5,044)     (831)    (6,054)            3,437     (20,581) 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
Operating 
 profit/(loss)                          1,403        2,654       2,917       157     (3,137)                -       3,994 
====================== 
 
Share of profit in 
 associates and joint 
 ventures                                 202          796         239         7          1                 -       1,245 
======================             ----------   ----------   ---------    ------   --------   ---------------   --------- 
 
Profit/(loss) before 
 tax                                    1,605        3,450       3,156       164     (3,136)                -       5,239 
======================             ----------   ----------   ---------   -------   --------   ---------------   --------- 
 
                                            %            %           %         %          %                             % 
 
Share of HSBC's profit 
 before tax                              30.6         65.9        60.2       3.1      (59.8)                        100.0 
====================== 
Cost efficiency ratio                    78.3         46.7        63.3      83.5      207.5                          76.6 
====================== 
 
Balance sheet data              9 
                                           $m           $m          $m        $m         $m                $m          $m 
Loans and advances to 
 customers (net)                      340,009      302,240     236,932    42,942      2,331                       924,454 
====================== 
Reported in held for 
 sale                                   5,258        8,010       3,689        85      1,979                        19,021 
====================== 
 
Total assets                          473,284      365,290   1,616,704    81,448    147,417          (274,487)  2,409,656 
====================== 
Customer accounts                     584,872      361,701     261,728    80,404        881                     1,289,586 
====================== 
Reported in held for 
 sale                                   7,758        3,363       2,551     3,010          -                        16,682 
====================== 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

45

Geographical regions

 
 
 
Geographical regions 
 
Summary                        46 
Europe                         47 
Asia                           47 
Middle East and North Africa   48 
North America                  48 
Latin America                  49 
Analysis by country            50 
============================= 
 
 

Summary

HSBC reviews operating activity on a number of bases, including by geographical region and by global business.

In the analysis of profit and loss by geographical region that follows, operating income and operating expenses include intra-HSBC items of $1,615m (1H15: $1,564m; 2H15: $1,811m).

All tables are on a reported basis unless otherwise stated.

 
 
 
 
Basis of preparation 
 The results of the geographical regions are presented in accordance with the accounting policies 
 used in the preparation of HSBC's consolidated financial statements. Our operations are closely 
 integrated, and accordingly, the presentation of the geographical data includes internal allocation 
 of certain items of income and expense. These allocations include the costs of certain support 
 services and global functions to the extent that they can be meaningfully attributed to geographical 
 regions. While such allocations have been done on a systematic and consistent basis, they 
 necessarily involve a degree of subjectivity. 
 Where relevant, income and expense amounts presented include the results of inter-segment 
 funding along with inter-company transactions. All such transactions are undertaken on an 
 arm's length basis. 
 The expense of the UK bank levy is included in the Europe geographical region as HSBC regards 
 the levy as a cost of being headquartered in the UK. 
 
 

Profit/(loss) before tax

 
 
 
                                                  Half-year to 
                                ------------------------------------------------- 
                                  30 Jun 2016     30 Jun 2015      31 Dec 2015 
                                    $m       %       $m      %      $m       % 
 
Europe                           1,579    16.3    2,205   16.2  (1,562)  (29.8) 
============================== 
Asia                             7,155    73.7    9,400   69.0   6,363   121.5 
============================== 
Middle East and North Africa       985    10.1      901    6.6     636    12.1 
============================== 
North America                       50     0.5      690    5.1     (76)   (1.5) 
============================== 
Latin America                      (55)   (0.6)     432    3.1    (122)   (2.3) 
==============================  ------   -----   ------  -----  ------   ----- 
 
Profit before tax                9,714   100.0   13,628  100.0   5,239   100.0 
==============================  ------   -----   ------  -----  ------   ----- 
 

Total assets(9)

 
 
 
                                            At 30 Jun 2016       At 31 Dec 2015 
                                          ------------------  -------------------- 
                                                 $m       %          $m       % 
 
Europe                                    1,251,513    47.9   1,129,365    46.9 
======================================== 
Asia                                        946,998    36.3     889,747    36.9 
======================================== 
Middle East and North Africa                 58,802     2.3      59,236     2.5 
======================================== 
North America                               438,658    16.8     393,960    16.3 
======================================== 
Latin America                                93,067     3.6      86,262     3.6 
======================================== 
Intra-HSBC items                           (180,889)   (6.9)   (148,914)   (6.2) 
========================================  ---------   -----   ---------   ----- 
 
Total assets                              2,608,149   100.0   2,409,656   100.0 
========================================  ---------   -----   ---------   ----- 
 

Risk-weighted assets(21)

 
 
 
                                           At 30 Jun 2016     At 31 Dec 2015 
                                          ----------------  ------------------ 
                                               $bn       %        $bn      % 
 
Total RWAs                                  1082.2   100.0    1,103.0  100.0 
========================================  --------  ------  ---------  ----- 
 
Europe                                       331.2    30.6      337.4   30.6 
======================================== 
Asia                                         462.3    42.7      459.7   41.7 
======================================== 
Middle East and North Africa                  59.7     5.5       60.4    5.5 
======================================== 
North America                                175.1    16.2      191.6   17.4 
======================================== 
Latin America                                 78.6     7.3       73.4    6.7 
======================================== 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

46

Geographical regions (continued)

Europe

Our principal banking operations in Europe are HSBC Bank plc in the UK, HSBC France, HSBC Private Bank (Suisse) SA and HSBC Trinkaus & Burkhardt AG in Germany. Through these operations we provide a wide range of banking, treasury and financial services to personal, commercial and corporate customers across Europe.

In total, we operate in 24 countries and territories in Europe.

 
 
 
                                                                Half-year to 
                                                    ------------------------------------- 
                                                     30 Jun       30 Jun       31 Dec 
                                                       2016         2015         2015 
                                         Footnotes       $m           $m           $m 
 
Net interest income                                   4,653        5,115        4,890 
======================================= 
Net fee income                                        2,250        2,447        2,444 
======================================= 
Net trading income                                    2,886        1,913        2,147 
======================================= 
Other income                                          1,333        1,994          108 
=======================================             -------      -------      ------- 
 
Net operating income                            12   11,122       11,469        9,589 
======================================= 
 
LICs                                            13     (398)        (288)        (402) 
=======================================             -------      -------      ------- 
 
Net operating income                                 10,724       11,181        9,187 
======================================= 
 
Total operating expenses                             (9,144)      (8,978)     (10,755) 
=======================================             -------      -------      ------- 
 
Operating profit/(loss)                               1,580        2,203       (1,568) 
======================================= 
 
Income from associates                          14       (1)           2            6 
=======================================             -------      -------      ------- 
 
Profit/(loss) before tax                              1,579        2,205       (1,562) 
=======================================             -------      -------      ------- 
 
Loans and advances to customers (net)               365,325      400,452      392,041 
======================================= 
Customer accounts                                   482,992      536,251      497,876 
======================================= 
RoRWA                                                   0.9%         1.2%        (0.9)% 
======================================= 
Cost efficiency ratio                                  82.2%        78.3%       112.2 % 
======================================= 
Period-end staff numbers                             65,387       69,867       67,509 
======================================= 
 

For footnotes, see page 59.

Asia

Our principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited, and Hang Seng Bank Limited. The former is the largest bank incorporated in Hong Kong and is our flagship bank in Asia.

We offer a wide range of banking and financial services in mainland China through our local subsidiaries, HSBC Bank (China) Company Limited and Hang Seng Bank (China) Limited. We also participate indirectly in mainland China through our associate, Bank of Communications Co., Limited ('BoCom').

Outside Hong Kong and mainland China, we conduct business in 18 countries and territories in Asia, with particularly strong coverage in Australia, India, Indonesia, Malaysia, Singapore and Taiwan.

 
 
 
                                                                Half-year to 
                                                    ------------------------------------- 
                                                     30 Jun       30 Jun       31 Dec 
                                                       2016         2015         2015 
                                         Footnotes       $m           $m           $m 
 
Net interest income                                   6,141        6,060        6,124 
Net fee income                                        2,571        3,291        2,741 
Net trading income                                    1,703        1,779        1,311 
Other income                                          1,337        2,935        1,062 
=======================================             -------      -------      ------- 
 
Net operating income                            12   11,752       14,065       11,238 
======================================= 
 
LICs                                            13     (344)        (246)        (447) 
=======================================             -------      -------      ------- 
 
Net operating income                                 11,408       13,819       10,791 
======================================= 
 
Total operating expenses                             (5,245)      (5,457)      (5,432) 
=======================================             -------      -------      ------- 
 
Operating profit                                      6,163        8,362        5,359 
======================================= 
 
Income from associates                          14      992        1,038        1,004 
=======================================             -------      -------      ------- 
 
Profit before tax                                     7,155        9,400        6,363 
=======================================             -------      -------      ------- 
 
Loans and advances to customers (net)               352,404      371,639      356,375 
======================================= 
Customer accounts                                   610,200      599,940      598,620 
======================================= 
RoRWA                                                   3.1%         3.8%         2.7% 
======================================= 
Cost efficiency ratio                                  44.6%        38.8%        48.3% 
======================================= 
Period-end staff numbers                            119,699      120,588      120,144 
======================================= 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

47

Middle East and North Africa

The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us wide coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the Kingdom's sixth largest bank by total assets.

 
 
 
                                                               Half-year to 
                                                    ---------------------------------- 
                                                    30 Jun      30 Jun      31 Dec 
                                                      2016        2015        2015 
                                         Footnotes      $m          $m          $m 
 
Net interest income                                    786         758         773 
======================================= 
Net fee income                                         311         325         308 
======================================= 
Net trading income                                     185         167         158 
======================================= 
Other income                                            52          39          37 
=======================================             ------      ------      ------ 
 
Net operating income                            12   1,334       1,289       1,276 
======================================= 
 
LICs                                            13     (40)        (31)       (268) 
=======================================             ------      ------      ------ 
 
Net operating income                                 1,294       1,258       1,008 
======================================= 
 
Total operating expenses                              (559)       (624)       (610) 
=======================================             ------      ------      ------ 
 
Operating profit                                       735         634         398 
======================================= 
 
Income from associates                          14     250         267         238 
=======================================             ------      ------      ------ 
 
Profit before tax                                      985         901         636 
=======================================             ------      ------      ------ 
 
Loans and advances to customers (net)               29,774      31,207      29,894 
======================================= 
Customer accounts                                   35,094      38,186      36,468 
======================================= 
RoRWA                                                  3.3%        2.9%        2.0% 
======================================= 
Cost efficiency ratio                                 41.9%       48.4%       47.8% 
======================================= 
Period-end staff numbers                             7,693       8,208       8,066 
======================================= 
 

For footnotes, see page 59.

North America

Our North American businesses are principally located in the US and Canada. Operations in the US are primarily conducted through HSBC Bank USA, N.A. and HSBC Finance Corporation, a national consumer finance company. HSBC Markets (USA) Inc. is the intermediate holding company of, inter alia, HSBC Securities (USA) Inc. Canadian operations are conducted through HSBC Bank Canada.

 
 
 
                                                                Half-year to 
                                                    ------------------------------------- 
                                                     30 Jun       30 Jun       31 Dec 
                                                       2016         2015         2015 
                                         Footnotes       $m           $m           $m 
 
Net interest income                                   2,236        2,278        2,254 
======================================= 
Net fee income                                          970        1,057          961 
======================================= 
Net trading income                                      221          296          249 
======================================= 
Other income                                            525          495           67 
=======================================             -------      -------      ------- 
 
Net operating income                            12    3,952        4,126        3,531 
======================================= 
 
LICs                                            13     (617)        (153)        (391) 
=======================================             -------      -------      ------- 
 
Net operating income                                  3,335        3,973        3,140 
======================================= 
 
Total operating expenses                             (3,283)      (3,287)      (3,214) 
=======================================             -------      -------      ------- 
 
Operating profit/(loss)                                  52          686          (74) 
=======================================             ------- 
 
Income from associates                          14       (2)           4           (2) 
=======================================             -------      -------      ------- 
 
Profit/(loss) before tax                                 50          690          (76) 
=======================================             -------      -------      ------- 
 
Loans and advances to customers (net)               122,509      132,340      128,851 
======================================= 
Customer accounts                                   142,152      137,296      135,152 
======================================= 
RoRWA                                                   0.1%         0.6%        (0.1)% 
======================================= 
Cost efficiency ratio                                  83.1%        79.7%        91.0% 
======================================= 
Period-end staff numbers                             18,838       20,338       19,656 
======================================= 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

48

Geographical regions (continued)

Latin America

In 1H16, our operations in Latin America principally comprised HSBC Bank Brasil S.A.-Banco Múltiplo and HSBC México, S.A. In addition to banking services, we operated insurance businesses in Brazil, Mexico and Argentina. During 2015 our operations in Brazil were classified as held for sale. On 1 July, we completed the sale of our operations in Brazil.

 
 
 
                                                                              Half-year to 
                            ---------------------------------------------------------------------------------------------------------------- 
                                        30 Jun 2016                           30 Jun 2015                           31 Dec 2015 
                            ------------------------------------  ------------------------------------  ------------------------------------ 
                              Total                    Other        Total                    Other        Total                    Other 
                              Latin                    Latin        Latin                    Latin        Latin                    Latin 
                            America      Brazil      America      America      Brazil      America      America      Brazil      America 
                 Footnotes       $m          $m           $m           $m          $m           $m           $m          $m           $m 
Net interest 
 income                       1,976         974        1,002        2,249       1,214        1,035        2,069       1,011        1,058 
=============== 
Net fee income                  484         233          251          605         307          298          526         253          273 
=============== 
Net trading 
 income                         297         144          153          402         242          160          262         128          134 
=============== 
Other income                    168         112           56          302         279           23          177         150           27 
===============             -------      ------      -------      -------      ------      -------      -------      ------      ------- 
 
Net operating 
 income                 12    2,925       1,463        1,462        3,558       2,042        1,516        3,034       1,542        1,492 
=============== 
 
LICs                    13     (967)       (748)        (219)        (721)       (498)        (223)        (774)       (467)        (307) 
===============             -------      ------      -------      -------      ------      -------      -------      ------      ------- 
 
Net operating 
 income                       1,958         715        1,243        2,837       1,544        1,293        2,260       1,075        1,185 
=============== 
 
Total operating 
 expenses                    (2,012)     (1,070)        (942)      (2,405)     (1,353)      (1,052)      (2,381)     (1,260)      (1,121) 
===============             -------      ------      -------      -------      ------      -------      -------      ------      ------- 
 
Operating 
 (loss)/profit                  (54)       (355)         301          432         191          241         (121)       (185)          64 
=============== 
 
Income from 
 associates             14       (1)         (1)           -            -           -            -           (1)         (1)           - 
===============             -------      ------      -------      -------      ------      -------      -------      ------      ------- 
 
(Loss)/profit 
 before tax                     (55)       (356)         301          432         191          241         (122)       (186)          64 
===============             -------      ------      -------      -------      ------      -------      -------      ------      ------- 
 
Loans and 
 advances to 
 customers 
 (net)                       17,544           -       17,544       18,347           -       18,347       17,293           -       17,293 
=============== 
  - reported in 
   held for 
   sale                      19,203      19,203            -       20,827      20,827            -       17,001      17,001            - 
=============== 
Customer 
 accounts                    20,520           -       20,520       24,127           -       24,127       21,470           -       21,470 
=============== 
  - reported in 
   held for 
   sale                      19,357      19,357            -       19,432      19,432            -       15,094      15,094            - 
=============== 
RoRWA                          (0.1)%      (1.6)%        1.9%         1.0%        0.8%         1.3%        (0.3)%      (0.9)%        0.4% 
=============== 
Cost efficiency 
 ratio                         68.8%       73.1%        64.4%        67.6%       66.3%        69.4%        78.5%       81.7%        75.1% 
=============== 
Period-end 
 staff numbers               39,719      18,835       20,884       40,787      19,641       21,146       39,828      19,145       20,683 
=============== 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

49

Analysis by country

Profit/(loss) before tax by priority growth markets within global businesses

 
 
 
                                  Retail                   Global 
                                 Banking                  Banking     Global 
                              and Wealth   Commercial         and    Private 
                              Management      Banking     Markets    Banking   Other    Total 
                   Footnotes          $m           $m          $m         $m      $m       $m 
 
Europe                               853        1,326         594       (744)   (450)   1,579 
================= 
  - UK                               872        1,136         196         87    (314)   1,977 
================= 
  - France                             8          138         134          4     (72)     212 
================= 
  - Germany                           10           36          94          5     (16)     129 
================= 
  - Switzerland                        -            -           -        (53)    (23)     (76) 
================= 
  - other                            (37)          16         170       (787)    (25)    (663) 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
Asia                               2,081        2,356       2,512        123      83    7,155 
================= 
  - Hong Kong                      1,811        1,198       1,092         91     (22)   4,170 
================= 
  - Australia                         50           25          59          -      (2)     132 
================= 
  - India                             11           81         236          6      68      402 
================= 
  - Indonesia                         (3)          51          67          -      (6)     109 
================= 
  - Mainland 
   China                             112          754         459         (2)     49    1,372 
================= 
  - Malaysia                          29           44         107          -      11      191 
================= 
  - Singapore                         26           63         145         28      (2)     260 
================= 
  - Taiwan                            14           10          62          -      (2)      84 
================= 
  - other                             31          130         285          -     (11)     435 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
Middle East and 
 North Africa                        161          322         506          5      (9)     985 
================= 
  - Egypt                             34           62         139          -       -      235 
================= 
  - UAE                               72          114         184          -     (10)     360 
================= 
  - Saudi Arabia                      45           79         119          5       3      251 
================= 
  - other                             10           67          64          -      (2)     139 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
North America                       (515)         310         159         53      43       50 
================= 
  - US                              (571)         204         (18)        31      64     (290) 
================= 
  - Canada                            27           93         148          -     (23)     245 
================= 
  - other                             29           13          29         22       2       95 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
Latin America                       (198)         (10)        235          6     (88)     (55) 
================= 
  - Mexico                            47           52          51          1     (21)     130 
================= 
  - other                           (245)         (62)        184          5     (67)    (185) 
=================             ----------   ----------   ---------   --------   -----   ------ 
  included in 
   other: Brazil           5        (281)        (140)        111          4     (51)    (357) 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
Half-year to 30 
 Jun 2016                          2,382        4,304       4,006       (557)   (421)   9,714 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
Europe                               863        1,287         905        (23)   (827)   2,205 
================= 
  - UK                               633        1,115         398        100    (821)   1,425 
================= 
  - France                           284           83         241         10       5      623 
================= 
  - Germany                           12           30          74         12     (14)     114 
================= 
  - Switzerland                        -            3           1       (162)      -     (158) 
================= 
  - other                            (66)          56         191         17       3      201 
=================             ----------   ----------   ---------   --------   -----   ------ 
 
Asia                               2,531        2,404       2,683        156   1,626    9,400 
================= 
  - Hong Kong                      2,172        1,239       1,238        120   1,464    6,233 
================= 
  - Australia                         24           61         128          -      (7)     206 
================= 
  - India                             (3)          46         195          7      90      335 
================= 
  - Indonesia                          -          (29)         38          -      17       26 
================= 
  - Mainland 
   China                             184          817         544         (1)     38    1,582 
================= 
  - Malaysia                          67           60         105          -       8      240 
================= 
  - Singapore                         45           63         139         31     (17)     261 
================= 
  - Taiwan                            11           12          66          -      (5)      84 
================= 
  - other                             31          135         230         (1)     38      433 
=================             ----------   ----------   ---------   --------   -----   ------ 
 

HSBC HOLDINGS PLC

50

Geographical regions (continued)

 
 
 
                                  Retail                  Global 
                                 Banking                 Banking     Global 
                              and Wealth   Commercial        and    Private 
                              Management      Banking    Markets    Banking    Other    Total 
                                      $m           $m         $m         $m       $m       $m 
 
Middle East and 
 North Africa      Footnotes         172          273        470          8      (22)     901 
=================                                                  -------- 
  - Egypt                             26           50        128          -       (1)     203 
================= 
  - UAE                               83           76        157         (1)     (21)     294 
================= 
  - Saudi Arabia                      54           82        118         10        -      264 
================= 
  - other                              9           65         67         (1)       -      140 
=================             ----------   ----------   --------   --------   ------   ------ 
 
North America                       (172)         423        356         37       46      690 
================= 
  - US                              (219)         204        190         37       70      282 
================= 
  - Canada                            33          206        142          -      (17)     364 
================= 
  - other                             14           13         24          -       (7)      44 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Latin America                        (32)         136        340          2      (14)     432 
================= 
  - Mexico                            33           28         56          -        1      118 
================= 
  - other                            (65)         108        284          2      (15)     314 
=================             ----------   ----------   --------   --------   ------   ------ 
  included in 
   other: Brazil           5         (74)          32        208          2       23      191 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Half-year to 30 
 Jun 2015                          3,362        4,523      4,754        180      809   13,628 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Europe                               331        1,032        143         37   (3,105)  (1,562) 
================= 
  - UK                               331          925        (14)        69   (3,036)  (1,725) 
================= 
  - France                           104           69       (129)         4      (32)      16 
================= 
  - Germany                           11           36         83          8      (13)     125 
================= 
  - Switzerland                        -            5         (1)       (58)      (4)     (58) 
================= 
  - other                           (115)          (3)       204         14      (20)      80 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Asia                               1,855        2,104      2,251         96       57    6,363 
================= 
  - Hong Kong                      1,627        1,145        881         57     (137)   3,573 
================= 
  - Australia                         37           18        110          -        2      167 
================= 
  - India                            (22)          51        184          7       51      271 
================= 
  - Indonesia                         (6)         (83)        42          -       14      (33) 
================= 
  - Mainland 
   China                             113          752        518         (2)      97    1,478 
================= 
  - Malaysia                          52           35        110          -        5      202 
================= 
  - Singapore                         35           59        120         34       (2)     246 
================= 
  - Taiwan                             -           12         67          -       (8)      71 
================= 
  - other                             19          115        219          -       35      388 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Middle East and 
 North Africa                        100          135        403          8      (10)     636 
================= 
  - Egypt                             24           51        128          -        4      207 
================= 
  - UAE                                8          (57)       135          1      (14)      73 
================= 
  - Saudi Arabia                      58           87         84          6        1      236 
================= 
  - other                             10           54         56          1       (1)     120 
=================             ----------   ----------   --------   --------   ------   ------ 
 
North America                       (473)         150        237         22      (12)     (76) 
================= 
  - US                              (517)          98        165         28      (15)    (241) 
================= 
  - Canada                            25           53         47          -       (4)     121 
================= 
  - other                             19           (1)        25         (6)       7       44 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Latin America                       (208)          29        122          1      (66)    (122) 
=================                          ---------- 
  - Mexico                            40          (33)       (71)        (3)     (19)     (86) 
================= 
  - other                           (248)          62        193          4      (47)     (36) 
================= 
  included in 
   other: Brazil           5        (270)         (21)       128          4      (27)    (186) 
=================             ----------   ----------   --------   --------   ------   ------ 
 
Half-year to 31 
 Dec 2015                          1,605        3,450      3,156        164   (3,136)   5,239 
=================             ----------   ----------   --------   --------   ------   ------ 
 

For footnote, see page 59.

HSBC HOLDINGS PLC

51

Other information

 
 
 
Other information 
 

Funds under management

 
 
 
                                                    Half-year to 
                                          -------------------------------- 
                                          30 Jun                 31 Dec 
                                            2016   30 Jun 2015     2015 
                                             $bn           $bn      $bn 
Funds under management by business 
Global Asset Management                      426           440      419 
======================================== 
Global Private Banking                       232           280      261 
======================================== 
Affiliates                                     3             6        4 
======================================== 
Other                                        209           237      212 
========================================  ------   -----------   ------ 
 
                                             870           963      896 
                                          ------   -----------   ------ 
 
At beginning of period                       896           954      963 
======================================== 
Net new money                                 (8)            3       (6) 
======================================== 
Value change                                   6            32      (30) 
======================================== 
Exchange and other                           (24)          (26)     (31) 
========================================  ------   -----------   ------ 
 
At end of period                             870           963      896 
========================================  ------   -----------   ------ 
 

HSBC HOLDINGS PLC

52

Other information (continued)

Reconciliation of reported results to adjusted performance

Reconciliation of reported results to adjusted performance - geographical regions

 
 
 
                                                          Half-year to 30 Jun 2016 
                                 -------------------------------------------------------------------------- 
                                                             North     Latin                        Hong 
                                 Europe     Asia    MENA   America   America     Total       UK     Kong 
                      Footnotes      $m       $m      $m        $m        $m        $m       $m       $m 
Revenue                      12 
  Reported                   15  11,122   11,752   1,334     3,952     2,925    29,470    8,450    7,061 
==================== 
  Significant items              (1,522)     (66)     (5)      (74)       65    (1,602)  (1,391)     (22) 
==================== 
  - debit valuation 
   adjustment 
   ('DVA') on 
   derivative 
   contracts                       (110)     (63)      -       (13)       35      (151)    (100)     (25) 
==================== 
  - disposal costs 
   of Brazilian 
   operations                         -        -       -         -        32        32        -        - 
==================== 
  - fair value 
   movements on 
   non-qualifying 
   hedges                    22     277       13       -       109        (2)      397      239       16 
==================== 
  - gain on sale of 
   several tranches 
   of real estate 
   secured accounts 
   in the US                          -        -       -       (68)        -       (68)       -        - 
==================== 
  - gain on disposal 
   of our membership 
   interest in Visa 
   Europe                          (584)       -       -         -         -      (584)    (441)       - 
==================== 
  - own credit 
   spread                    23  (1,103)     (16)     (5)     (102)        -    (1,226)  (1,087)     (13) 
==================== 
  - releases arising 
   from the ongoing 
   review of 
   compliance with 
   the UK Consumer 
   Credit Act                        (2)       -       -         -         -        (2)      (2)       - 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
    Adjusted                 15   9,600   11,686   1,329     3,878     2,990    27,868    7,059    7,039 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
LICs                         13 
  Reported                         (398)    (344)    (40)     (617)     (967)   (2,366)    (261)    (143) 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                         (398)    (344)    (40)     (617)     (967)   (2,366)    (261)    (143) 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
Operating expenses 
  Reported                   15  (9,144)  (5,245)   (559)   (3,283)   (2,012)  (18,628)  (6,210)  (2,760) 
==================== 
  Significant items               1,841      114       3       708        17     2,683      873       62 
  - costs-to-achieve                774      114       3       121         6     1,018      674       62 
==================== 
  - costs to 
   establish UK 
   ring-fenced bank                  94        -       -         -         -        94       94        - 
==================== 
  - disposal costs 
   of Brazilian 
   operations                         -        -       -         -        11        11        -        - 
==================== 
  - impairment of 
   Global Private 
   Banking - Europe 
   goodwill                         800        -       -         -         -       800        -        - 
==================== 
  - regulatory 
   provisions in GPB                  4        -       -         -         -         4        -        - 
==================== 
  - settlements and 
   provisions in 
   connection with 
   legal matters                    136        -       -       587         -       723       72        - 
==================== 
  - UK customer 
   redress 
   programmes                        33        -       -         -         -        33       33        - 
==================== 
 
  Adjusted                   15  (7,303)  (5,131)   (556)   (2,575)   (1,995)  (15,945)  (5,337)  (2,698) 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
Share of profit in 
associates and 
joint ventures 
  Reported                           (1)     992     250        (2)       (1)    1,238       (2)      12 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                           (1)     992     250        (2)       (1)    1,238       (2)      12 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
Profit before tax 
  Reported                        1,579    7,155     985        50       (55)    9,714    1,977    4,170 
==================== 
  Significant items                 319       48      (2)      634        82     1,081     (518)      40 
==================== 
  - revenue                      (1,522)     (66)     (5)      (74)       65    (1,602)  (1,391)     (22) 
==================== 
  - operating 
   expenses                       1,841      114       3       708        17     2,683      873       62 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                        1,898    7,203     983       684        27    10,795    1,459    4,210 
====================             ------   ------   -----   -------   -------   -------   ------   ------ 
 

HSBC HOLDINGS PLC

53

 
 
 
                                                         Half-year to 30 Jun 2015 
                               ---------------------------------------------------------------------------- 
                                                           North       Latin                        Hong 
                               Europe     Asia    MENA   America     America     Total       UK     Kong 
                    Footnotes      $m       $m      $m        $m          $m        $m       $m       $m 
Revenue                    12 
  Reported                 15  11,469   14,065   1,289     4,126       3,558    32,943    8,246    9,130 
================== 
  Currency 
   translation             15    (523)    (252)    (33)      (61)       (758)   (1,594)    (449)     (16) 
================== 
  Significant 
   items                         (580)  (1,419)     (3)     (157)        (12)   (2,171)    (539)  (1,380) 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
  - DVA on 
   derivative 
   contracts                      (79)     (50)     (1)      (22)        (13)     (165)     (67)     (14) 
================== 
  - fair value 
   movements on 
   non-qualifying 
   hedges                  22      23        -       -        21           1        45       44        5 
================== 
  - gain on sale 
   of several 
   tranches of 
   real estate 
   secured 
   accounts in the 
   US                               -        -       -       (17)          -       (17)       -        - 
================== 
  - gain on the 
   partial sale of 
   shareholding in 
   Industrial Bank                  -   (1,372)      -         -           -    (1,372)       -   (1,372) 
================== 
  - own credit 
   spread                  23    (512)       3      (2)     (139)          -      (650)    (504)       1 
================== 
  - releases 
   arising from 
   the ongoing 
   review of 
   compliance with 
   the UK Consumer 
   Credit Act                     (12)       -       -         -           -       (12)     (12)       - 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
  Adjusted                 15  10,366   12,394   1,253     3,908       2,788    29,178    7,258    7,734 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
LICs                       13 
  Reported                       (288)    (246)    (31)     (153)       (721)   (1,439)     (72)     (58) 
================== 
  Currency 
   translation                     13        8       -         3         136       160        6        1 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
  Adjusted                       (275)    (238)    (31)     (150)       (585)   (1,279)     (66)     (57) 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
Operating 
expenses 
  Reported                 15  (8,978)  (5,457)   (624)   (3,287)     (2,405)  (19,187)  (6,753)  (2,855) 
================== 
  Currency 
   translation             15     387      144       9        32         498     1,037      327        5 
================== 
  Significant 
   items                        1,132        8       1       398           6     1,545      967        6 
================== 
  - regulatory 
   provisions in 
   GPB                            147        -       -         -           -       147        -        - 
================== 
  - restructuring 
   and other 
   related costs                   68        8       1        34           6       117       50        6 
================== 
  - settlement and 
   provisions in 
   connection with 
   legal matters                  780        -       -       364           -     1,144      780        - 
================== 
  - UK customer 
   redress 
   programmes                     137        -       -         -           -       137      137        - 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
  Adjusted                 15  (7,459)  (5,305)   (614)   (2,857)     (1,901)  (16,605)  (5,459)  (2,844) 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
Share of profit 
in associates and 
joint ventures 
  Reported                          2    1,038     267         4            -    1,311        4       16 
================== 
  Currency 
   translation                      2      (55)      -        (1)         (1)      (55)      (1)       - 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
  Adjusted                          4      983     267         3          (1)    1,256        3       16 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
Profit before tax 
  Reported                      2,205    9,400     901       690         432    13,628    1,425    6,233 
================== 
  Currency 
   translation                   (121)    (155)    (24)      (27)       (125)     (452)    (117)     (10) 
  Significant 
   items                          552   (1,411)     (2)      241          (6)     (626)     428   (1,374) 
  - revenue                      (580)  (1,419)     (3)     (157)        (12)   (2,171)    (539)  (1,380) 
================== 
  - operating 
   expenses                     1,132        8       1       398           6     1,545      967        6 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 
  Adjusted                      2,636    7,834     875       904         301    12,550    1,736    4,849 
==================             ------   ------   -----   -------   ---------   -------   ------   ------ 
 

HSBC HOLDINGS PLC

54

Other information (continued)

Reconciliation of reported results to adjusted performance - geographical regions (continued)

 
 
 
                                                          Half-year to 31 Dec 2015 
                                 --------------------------------------------------------------------------- 
                                                              North     Latin                        Hong 
                                  Europe     Asia    MENA   America   America     Total       UK     Kong 
                      Footnotes       $m       $m      $m        $m        $m        $m       $m       $m 
Revenue                      12 
  Reported                   15    9,589   11,238   1,276     3,531     3,034    26,857    7,247    6,486 
==================== 
  Currency 
   translation               15     (439)     (50)    (21)       (7)     (267)     (763)    (446)     (14) 
==================== 
  Significant items                  (76)     (12)     (7)      255       (24)      136      (56)      (3) 
==================== 
  - DVA on 
   derivative 
   contracts                         (16)      (8)      -         1       (42)      (65)     (11)       1 
==================== 
  - disposal costs 
   of Brazilian 
   operations                          -        -       -         -        18        18        -        - 
==================== 
  - fair value 
   movements on 
   non-qualifying 
   hedges                    22      177        2       -       103         -       282      160        1 
==================== 
  - loss on sale of 
   several tranches 
   of real estate 
   secured accounts 
   in the US                           -        -       -       231         -       231        -        - 
==================== 
  - own credit 
   spread                    23     (259)      (6)     (7)      (80)        -      (352)    (227)      (5) 
==================== 
  - provisions 
   arising from the 
   ongoing review of 
   compliance with 
   the UK Consumer 
   Credit Act                         22        -       -         -         -        22       22        - 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                   15    9,074   11,176   1,248     3,779     2,743    26,230    6,745    6,469 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
LICs                         13 
  Reported                          (402)    (447)   (268)     (391)     (774)   (2,282)    (176)     (97) 
==================== 
  Currency 
   translation                         7       (5)      1        (3)       19        19        9        - 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                          (395)    (452)   (267)     (394)     (755)   (2,263)    (167)     (97) 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
Operating expenses 
  Reported                   15  (10,755)  (5,432)   (610)   (3,214)   (2,381)  (20,581)  (8,802)  (2,831) 
==================== 
  Currency 
   translation               15      337       26       6         2       169       519      357        6 
==================== 
  Significant items                1,273      122      14       453       179     2,041    1,184       43 
==================== 
  - costs-to-achieve                 600      122      14       103        69       908      536       43 
==================== 
  - costs to 
   establish UK 
   ring-fenced bank                   89        -       -         -         -        89       89        - 
==================== 
  - disposal costs 
   of Brazilian 
   operations                          -        -       -         -       110       110        -        - 
==================== 
  - regulatory 
   provisions in GPB                  25        -       -         -         -        25        -        - 
==================== 
  - settlements and 
   provisions in 
   connection with 
   legal matters                     155        -       -       350         -       505      155        - 
==================== 
  - UK customer 
   redress 
   programmes                        404        -       -         -         -       404      404        - 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                   15   (9,145)  (5,284)   (590)   (2,759)   (2,033)  (18,021)  (7,261)  (2,782) 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
Share of profit in 
associates and 
joint ventures 
  Reported                             6    1,004     238        (2)       (1)    1,245        6       15 
==================== 
  Currency 
   translation                         -      (30)     (1)        -         1       (30)       1        - 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                             6      974     237        (2)        -     1,215        7       15 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
Profit before tax 
  Reported                        (1,562)   6,363     636       (76)     (122)    5,239   (1,725)   3,573 
==================== 
  Currency 
   translation                       (95)     (59)    (15)       (8)      (78)     (255)     (79)      (8) 
==================== 
  Significant items                1,197      110       7       708       155     2,177    1,128       40 
==================== 
  - revenue                          (76)     (12)     (7)      255       (24)      136      (56)      (3) 
==================== 
  - operating 
   expenses                        1,273      122      14       453       179     2,041    1,184       43 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 
  Adjusted                          (460)   6,414     628       624       (45)    7,161     (676)   3,605 
====================             -------   ------   -----   -------   -------   -------   ------   ------ 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

55

Reconciliation of reported results to adjusted performance - global businesses

 
 
 
                                                        Half-year to 30 Jun 2016 
                                         ------------------------------------------------------- 
                                           RBWM      CMB     GB&M      GPB    Other     Total 
                              Footnotes      $m       $m       $m       $m       $m        $m 
Revenue                              12 
  Reported                           15  11,117    7,509    8,913      973    4,028    29,470 
============================ 
  Significant items                        (280)    (230)    (131)      (2)    (959)   (1,602) 
  - debit value adjustment 
   ('DVA') on derivative 
   contracts                                  -        -     (151)       -        -      (151) 
============================ 
  - disposal costs of 
   Brazilian operations                       -        -        -        -       32        32 
============================ 
  - fair value movements on 
   non-qualifying hedges             22     142        -       20        -      235       397 
============================ 
  - gain on sale of several 
   tranches of real estate 
   secured accounts in the 
   US                                       (68)       -        -        -        -       (68) 
============================ 
  - gain on disposal of our 
   membership interest in 
   Visa Europe                             (354)    (230)       -        -        -      (584) 
============================ 
  - own credit spread                23       -        -        -        -   (1,226)   (1,226) 
============================ 
  - releases arising from 
   the ongoing review of 
   compliance with the UK 
   Consumer Credit Act                        -        -        -       (2)       -        (2) 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                           15  10,837    7,279    8,782      971    3,069    27,868 
============================             ------   ------   ------   ------   ------   ------- 
 
LICs                                 13 
  Reported                               (1,120)    (833)    (425)      11        1    (2,366) 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                               (1,120)    (833)    (425)      11        1    (2,366) 
============================             ------   ------   ------   ------   ------   ------- 
 
Operating expenses 
  Reported                           15  (7,808)  (3,143)  (4,749)  (1,545)  (4,453)  (18,628) 
============================ 
  Significant items                         737       54      243      805      844     2,683 
============================ 
  - costs-to-achieve                        142       37       91        5      743     1,018 
============================ 
  - costs to establish UK 
   ring-fenced bank                           -        -        -        -       94        94 
============================ 
  - disposal costs of 
   Brazilian operations                       8        2       (2)       -        3        11 
============================ 
  - impairment of Global 
   Private Banking - Europe 
   goodwill                                   -        -        -      800        -       800 
============================ 
  - regulatory provisions in 
   GPB                                        -        -        -        -        4         4 
============================ 
  - settlements and 
   provisions in connection 
   with legal matters                       587        -      136        -        -       723 
============================ 
  - UK customer redress 
   programmes                                 -       15       18        -        -        33 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                           15  (7,071)  (3,089)  (4,506)    (740)  (3,609)  (15,945) 
============================             ------   ------   ------   ------   ------   ------- 
 
Share of profit in 
associates and joint 
ventures 
  Reported                                  193      771      267        4        3     1,238 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                                  193      771      267        4        3     1,238 
============================             ------   ------   ------   ------   ------   ------- 
 
Profit before tax 
  Reported                                2,382    4,304    4,006     (557)    (421)    9,714 
============================ 
  Significant items                         457     (176)     112      803     (115)    1,081 
============================ 
  - revenue                                (280)    (230)    (131)      (2)    (959)   (1,602) 
============================ 
  - operating expenses                      737       54      243      805      844     2,683 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                                2,839    4,128    4,118      246     (536)   10,795 
============================             ------   ------   ------   ------   ------   ------- 
 

HSBC HOLDINGS PLC

56

Other information (continued)

Reconciliation of reported results to adjusted performance - global businesses (continued)

 
 
 
                                                        Half-year to 30 Jun 2015 
                                         ------------------------------------------------------- 
                                           RBWM      CMB     GB&M      GPB    Other     Total 
                              Footnotes      $m       $m       $m       $m       $m        $m 
Revenue                              12 
  Reported                           15  12,442    7,534   10,261    1,177    4,687    32,943 
  Currency translation               15    (726)    (393)    (464)     (28)     (61)   (1,594) 
  Significant items                         (23)       -     (143)     (24)  (1,981)   (2,171) 
  - DVA on derivative 
   contracts                                  -        -     (165)       -        -      (165) 
  - fair value movement on 
   non-qualifying hedges             22     (18)       -       22        -       41        45 
  - gain on sale of several 
   tranches of real estate 
   secured accounts in the 
   US                                       (17)       -        -        -        -       (17) 
  - gain on the partial sale 
   of shareholding in 
   Industrial Bank                            -        -        -        -   (1,372)   (1,372) 
  - own credit spread                23       -        -        -        -     (650)     (650) 
  - provisions/(releases) 
   arising from the ongoing 
   review of compliance with 
   the UK Consumer 
   Credit Act                                12        -        -      (24)       -       (12) 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                           15  11,693    7,141    9,654    1,125    2,645    29,178 
============================             ------   ------   ------   ------   ------   ------- 
 
LICs                                 13 
  Reported                                 (934)    (511)      11       (5)       -    (1,439) 
  Currency translation                      118       42        -        -        -       160 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                                 (816)    (469)      11       (5)       -    (1,279) 
============================             ------   ------   ------   ------   ------   ------- 
 
Operating expenses 
  Reported                           15  (8,354)  (3,321)  (5,790)  (1,001)  (3,879)  (19,187) 
  Currency translation               15     556      187      250       27       95     1,037 
  Significant items                         472       52      816      165       40     1,545 
  - regulatory provisions in 
   GBP                                        -        -        -      147        -       147 
  - restructuring and other 
   related costs                             32        5       22       18       40       117 
  - settlements and 
   provisions in connection 
   with legal matters                       350        -      794        -        -     1,144 
  - UK customer redress 
   programmes                                90       47        -        -        -       137 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                           15  (7,326)  (3,082)  (4,724)    (809)  (3,744)  (16,605) 
============================             ------   ------   ------   ------   ------   ------- 
 
Share of profit in 
associates and joint 
ventures 
  Reported                                  208      821      272        9        1     1,311 
  Currency translation                       (6)     (40)      (9)       -        -       (55) 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                                  202      781      263        9        1     1,256 
============================             ------   ------   ------   ------   ------   ------- 
 
Profit before tax 
  Reported                                3,362    4,523    4,754      180      809    13,628 
  Currency translation                      (58)    (204)    (223)      (1)      34      (452) 
  Significant items                         449       52      673      141   (1,941)     (626) 
  - revenue                                 (23)       -     (143)     (24)  (1,981)   (2,171) 
  - operating expenses                      472       52      816      165       40     1,545 
============================             ------   ------   ------   ------   ------   ------- 
 
  Adjusted                                3,753    4,371    5,204      320   (1,098)   12,550 
============================             ------   ------   ------   ------   ------   ------- 
 

HSBC HOLDINGS PLC

57

 
 
 
                                                         Half-year to 31 Dec 2015 
                                           ----------------------------------------------------- 
                                             RBWM      CMB     GB&M    GPB    Other     Total 
                                Footnotes      $m       $m       $m     $m       $m        $m 
Revenue                                12 
  Reported                             15  11,074    7,336    7,972    995    2,917    26,857 
============================== 
  Currency translation                 15    (328)    (213)    (207)     1      (18)     (763) 
============================== 
  Significant items                           349       17      (56)    (7)    (167)      136 
============================== 
  - disposal costs of 
   Brazilian operations                         -        -        -      -       18        18 
  - DVA on derivative 
   contracts                                    -        -      (65)     -        -       (65) 
============================== 
  - fair value movements on 
   non-qualifying hedges               22     108       (1)       9     (1)     167       282 
============================== 
  - loss on sale of several 
   tranches of real estate 
   secured accounts in the US                 231        -        -      -        -       231 
============================== 
  - own credit spread                  23       -        -        -      -     (352)     (352) 
  - provisions/(releases) 
   arising from the ongoing 
   review of compliance with 
   the UK Consumer 
   Credit Act                                  10       18        -     (6)       -        22 
==============================             ------   ------   ------   ----   ------   ------- 
 
  Adjusted                             15  11,095    7,140    7,709    989    2,732    26,230 
==============================             ------   ------   ------   ----   ------   ------- 
 
LICs                                   13 
  Reported                                 (1,005)  (1,259)     (11)    (7)       -    (2,282) 
============================== 
  Currency translation                         16        7       (4)     -        -        19 
==============================             ------   ------   ------   ----   ------   ------- 
 
  Adjusted                                   (989)  (1,252)     (15)    (7)       -    (2,263) 
==============================             ------   ------   ------   ----   ------   ------- 
 
Operating expenses 
  Reported                             15  (8,666)  (3,423)  (5,044)  (831)  (6,054)  (20,581) 
============================== 
  Currency translation                 15     260       92      149    (10)      30       519 
============================== 
  Significant items                         1,065      150      219     41      566     2,041 
============================== 
  - costs-to-achieve                          198      163       69     16      462       908 
  - costs to establish UK 
   ring-fenced bank                             -        -        -      -       89        89 
============================== 
  - disposal costs of 
   Brazilian operations                        66       16       14      1       13       110 
  - regulatory provisions in 
   GPB                                          -        -        -     24        1        25 
============================== 
  - settlements and provisions 
   in connection with legal 
   matters                                    350        -      155      -        -       505 
  - UK customer redress 
   programmes                                 451      (29)     (19)     -        1       404 
==============================             ------   ------   ------   ----   ------   ------- 
 
  Adjusted                             15  (7,341)  (3,181)  (4,676)  (800)  (5,458)  (18,021) 
==============================             ------   ------   ------   ----   ------   ------- 
 
Share of profit in associates 
and joint ventures 
  Reported                                    202      796      239      7        1     1,245 
============================== 
  Currency translation                         (5)     (21)      (4)     -        -       (30) 
==============================             ------   ------   ------   ----   ------   ------- 
 
  Adjusted                                    197      775      235      7        1     1,215 
==============================             ------   ------   ------   ----   ------   ------- 
 
Profit before tax 
  Reported                                  1,605    3,450    3,156    164   (3,136)    5,239 
============================== 
  Currency translation                        (57)    (135)     (66)    (9)      12      (255) 
============================== 
  Significant items                         1,414      167      163     34      399     2,177 
============================== 
  - revenue                                   349       17      (56)    (7)    (167)      136 
  - operating expenses                      1,065      150      219     41      566     2,041 
==============================             ------   ------   ------   ----   ------   ------- 
 
  Adjusted                                  2,962    3,482    3,253    189   (2,725)    7,161 
==============================             ------   ------   ------   ----   ------   ------- 
 

For footnotes, see page 59.

HSBC HOLDINGS PLC

58

Other information (continued)

Footnotes to pages 2 to 58

 
 
1  Net interest income includes the cost of internally funding trading assets, while the related 
    revenues are reported in net trading income. In our global business results, the total cost 
    of funding trading assets is included within GB&M's net trading income as an interest expense. 
    In the statutory presentation, internal interest income and expense are eliminated. 
 
 
 
2  Gross interest yield is the average annualised interest rate earned on average interest-earning 
    assets ('AIEA'). 
 
 
 
3  Net interest spread is the difference between the average annualised interest rate earned 
    on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate 
    payable on average interest-bearing funds. 
 
 
 
4  Net interest margin is net interest income expressed as an annualised percentage of AIEA. 
 
 
 
5  Our operations in Brazil are classified as held for sale, with balance sheet accounts classified 
    to 'assets held for sale' and 'liabilities of disposal groups held for sale'. There is no 
    separate income statement classification. 
 
 
 
6  Adjusted RoRWA is calculated using adjusted pre-tax return and adjusted average RWAs. RoRWAs 
    are calculated using annualised PBT and an average of RWAs at quarter-year ends. A reconciliation 
    between reported and adjusted performance is provided on page 53. 
 
 
 
7  'Currency translation adjustment' is the effect of translating the assets and liabilities 
    of subsidiaries and associates for the previous period-end at the rates of exchange applicable 
    at the current period-end. 
 
 
 
8  The main items reported under 'Other' are the results of HSBC's holding company and financing 
    operations, which include: net interest earned on free capital held centrally; operating costs 
    incurred by the head office operations in providing stewardship and central management services 
    to HSBC; costs incurred by the Group Service Centres and Shared Service Organisations, and 
    their associated recoveries; the UK bank levy; unallocated investment activities; centrally 
    held investment companies; gains arising from the dilution of interests in associates and 
    joint ventures; and gains from certain property transactions. 'Other' also includes part of 
    the movement in the fair value of long-term debt designated at fair value (the remainder of 
    the Group's movement on own debt is included in GB&M). 
 
 
 
9  Assets by geographical region and global businesses include intra-HSBC items. These items 
    are eliminated under the headings 'Intra-HSBC items' or 'Inter-segment elimination', as appropriate. 
 
 
 
10  The Principal RBWM business measure excludes the effects of the US run-off portfolio. We believe 
     that looking at the Principal RBWM business allows management to more clearly discuss the 
     cause of material changes from period to period in the ongoing business and to assess the 
     factors and trends in the business that are expected to have a material effect in future years. 
 
 
 
11  Other income/expense in this context comprises where applicable net trading income, net income/(expense) 
     from other financial instruments designated at fair value, gains less losses from financial 
     investments, dividend income, net insurance premium income and other operating income less 
     net insurance claims and benefits paid and movement in liabilities to policyholders. 
 
 
 
12  Net operating income before loan impairment charges and other credit risk provisions, also 
     referred to as revenue. 
 
 
 
13  Loan impairment charges and other credit risk provisions. 
 
 
 
14  Share of profit in associates and joint ventures. 
 
 
 
15  Amounts are non-additive across geographical regions and global businesses due to inter-company 
     transactions within the Group. 
 
 
 
16  'Other' in GB&M includes net interest earned on free capital held in the global business not 
     assigned to products and gains resulting from business disposals. Within the management view 
     of total operating income, notional tax credits are allocated to the businesses to reflect 
     the economic benefit generated by certain activities which is not reflected within operating 
     income, for example notional credits on income earned from tax-exempt investments where the 
     economic benefit of the activity is reflected in tax expense. In order to reflect the total 
     operating income on an IFRSs basis, the offset to these tax credits is included within 'Other'. 
 
 
 
17  'Client assets' are translated at the rates of exchange applicable for their respective period-ends, 
     with the effects of currency translation reported separately. The main components of client 
     assets are funds under management, which are not reported on the Group's balance sheet, and 
     customer deposits, which are reported on the Group's balance sheet. 
 
 
 
18  Inter-segment elimination comprises the costs of shared services and Group Service Centres 
     included within 'Other' which are recovered from global businesses, and the intra-segment 
     funding costs of trading activities undertaken within GB&M. HSBC's Balance Sheet Management 
     business, reported within GB&M, provides funding to the trading businesses. To report GB&M's 
     'Net trading income' on a fully funded basis, 'Net interest income/(expense)' and 'Net interest 
     income/(expense) on trading activities' are grossed up to reflect internal funding transactions 
     prior to their elimination in the inter-segment column. 
 
 
 
19  Net insurance claims and benefits paid and movement in liabilities to policyholders. 
 
 
 
20  'Employee expenses' comprises costs directly incurred by each global business. The reallocation 
     and recharging of employee and other expenses directly incurred in the 'Other' category are 
     shown in 'Other operating expenses'. 
 
 
 
21  RWAs are non-additive across geographical regions due to market risk diversification effects 
     within the Group. 
 
 
 
22  Excludes items where there are substantial offsets in the income statement for the same period. 
 
 
 
23  'Own credit spread' includes the fair value movements on our long-term debt attributable to 
     credit spread where the net result of such movements will be zero upon maturity of the debt. 
     This does not include fair value changes due to own credit risk in respect of trading liabilities 
     or derivative liabilities. 
 

HSBC HOLDINGS PLC

59

Risk

 
 
 
Risk 
======================================== 
 
Areas of special interest                 60 
Credit risk                               61 
Liquidity and funding                     75 
Market risk                               78 
Operational risk                          83 
Reputational risk                         84 
Risk management of insurance operations   84 
======================================== 
 
 

There have been no material changes to the policies and practices regarding risk management and governance described in the Annual Report and Accounts 2015.

A summary of our risk management policies and practices is provided in the Appendix to Risk on page 193 of the Annual Report and Accounts 2015.

Areas of special interest

During 1H16, we considered a number of particular areas because of the significant effect they may have on the Group. While some of these areas may have already been identified in our top and emerging risks (see page 16), further details of the actions taken in 1H16 are provided below.

The Monitor

Under the agreements entered into with the Department of Justice and the Financial Conduct Authority in 2012, including the five-year US deferred prosecution agreement, the Monitor was appointed to produce annual assessments of the effectiveness of the Group's anti-money laundering and sanctions compliance programme. The work of the Monitor is described on page 116 of the Annual Report and Accounts 2015.

We are working to implement the agreed recommendations flowing from the Monitor's reviews. The Monitor's third annual follow-up review is under way.

The 'US deferred prosecution agreement and related agreements and consent orders' is classified as a top and emerging risk, and is discussed on page 17.

Regulatory stress tests

The Group is participating in the Bank of England's 2016 concurrent stress test programme, which involves all major UK banks. The Bank of England will publish the results alongside the Financial Stability Report in the fourth quarter of 2016.

We also participated on a Group-wide basis in the European Banking Authority ('EBA') stress testing exercise. The results were published on 29 July 2016. Under the adverse scenario and methodology prescribed for this exercise, the Group maintained a ratio well above minimum regulatory requirements.

HSBC North America Holdings Inc. ('HNAH') participated in the 2016 Comprehensive Capital Analysis and Review ('CCAR') and Dodd-Frank Act Stress Testing ('DFAST') programmes of the Federal Reserve Board ('FRB'); HSBC Bank USA, N.A. participated in the 2016 DFAST programme of the

Office of the Comptroller of the Currency. Submissions were made on 5 April 2016 and the results of the FRB's DFAST process was disclosed on 23 June 2016. The results showed that HNAH had post-stress capital ratios which exceeded the regulatory minimums under both a supervisory adverse and severely adverse scenario. On 29 June 2016, the results of the CCAR process were announced and HNAH received a non-objection from the FRB to its 2016 capital plan.

Other entities in the Group, including The Hongkong and Shanghai Banking Corporation Limited, continue to participate in regional regulatory stress test activities.

A summary of our approach to stress testing and scenario analysis is provided on page 103 of the Annual Report and Accounts 2015.

The UK's referendum on EU membership

Following the UK electorate's vote to leave the European Union ('EU') in a national referendum, there has been a period of volatility against a backdrop of uncertainty, which is likely to continue for some time. We were aware of the potential for market disruption in the aftermath of a vote to leave the EU and took steps to plan for this outcome.

During 2015 and the first half of 2016, we undertook a number of different analyses including stress tests to consider the potential impact of a vote to leave the EU on capital positions, key portfolios, liquidity and our customers.

As the referendum approached, our priority was to ensure that we had adequate liquidity in each operating currency across all businesses. We also focused on operational and IT infrastructure resilience in anticipation of higher volumes and potential collateral calls immediately following the referendum. In addition, our global functions were engaged throughout and provided guidance on several issues including the standards of conduct to be maintained during a period of heightened volatility.

We are actively monitoring our portfolio to identify areas of stress, supported by stress testing analyses. Over the coming weeks and months, we intend to continue to work with regulators, governments and our customers in an effort to manage risks as they arise, particularly across those sectors most affected by the outcome. We will also continue to focus on serving and supporting our customers, and delivering on our strategy.

Negotiation of the UK's exit agreement, its future relationship with the EU and its trading relationship with the rest of the world will likely take a number of years to resolve. During this time, uncertainty as to the precise terms of these arrangements and the future legal and regulatory landscape may lead to uncertain economic conditions and market volatility. This may lead to reduced economic growth which could affect both HSBC and our clients.

Among other issues, changes to the UK's future relationship are likely to influence the business model for our London-based European cross-border banking operations, which currently rely on unrestricted access to the European financial services market.

Until the terms and timing of the UK's exit from the EU are confirmed, including the terms on which UK financial institutions will conduct cross-border business post-exit, it is not possible to fully determine the impact on HSBC.

HSBC HOLDINGS PLC

60

Risk (continued)

Oil and gas prices

Oil and commodity prices have remained low since the middle of 2014 as a result of existing global supply and demand imbalances, with significant price declines in late 2015 and early 2016. Prices rose during 1H16 reducing the level of stress in the portfolio. However the sector remains challenged with low levels of capital expenditure impacting the oil and gas services sector in particular.

The overall portfolio directly exposed to oil and gas had drawn risk exposures amounting to $31bn at 30 June 2016 (31 December 2015: $29bn) with sub-sectoral distributions as follows: integrated producers 48%, service companies 29%, pure producers 16% and infrastructure companies 7%.

The credit quality distribution of the oil and gas portfolio was as follows: 'strong' and 'good' categories made up 50% of the portfolio, 'satisfactory' 32%, 'sub-standard' 14% and 'impaired' 4%. The majority of the exposures were located in North America, Asia and Europe.

Individually assessed loan impairment charges in 1H16 remained contained at approximately $0.4bn.

The sector remains under enhanced monitoring with risk appetite and new lending significantly curtailed.

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, and also from certain other products such as guarantees and credit derivatives, and also from holding assets in the form of debt securities.

There have been no material changes to the policies and practices for the management of credit risk summarised in the Annual Report and Accounts 2015 in its 'Credit risk' section on page 118 and its Appendix to Risk on page 195.

Credit risk in the first half of 2016

An update on our oil and gas portfolio is provided in 'Areas of special interest' on page 61 of this Interim Report 2016.

Reported loans and advances declined by $36bn mainly due to foreign exchange effects reducing balances by $25bn.

Loan impairment charges for the period were $2.3bn. In wholesale lending, loan impairment charges were mainly in North America, Latin America and Europe. In retail lending, they consisted of impairments mainly in Brazil. More details of loan impairment charges are on page 27.

The commentary that follows is on a constant currency basis, while tables are presented on a reported basis. Information on currency movements is provided on page 72.

In wholesale lending, balances declined by $6.9bn. Significant net decreases included $3.5bn in North America, $2.2bn in Asia and $1.7bn in Europe.

In personal lending, balances decreased by $4.0bn, consisting of $5.9bn in North America partly offset by a $1.0bn increase in Europe.

Summary of credit risk

 
 
 
                                                                       30 Jun      31 Dec 
                                                                         2016        2015 
                                                            Footnotes     $bn         $bn 
At end of period 
Maximum exposure to credit risk 
  - total assets subject to credit risk                                 2,444       2,234 
========================================================== 
  - off-balance sheet commitments subject to credit risk            1     713         713 
==========================================================             ------      ------ 
 
                                                                        3,157       2,947 
                                                                       ------      ------ 
 
Gross loans and advances 
  - personal lending                                                      360         374 
========================================================== 
  - wholesale lending                                                     629         650 
==========================================================                         ------ 
 
                                                                          989       1,024 
                                                                       ------      ------ 
 
Impaired loans 
  - personal lending                                                        9          12 
========================================================== 
  - wholesale lending                                                      13          12 
==========================================================             ------      ------ 
 
                                                                           22          24 
                                                                       ------      ------ 
 
Impaired loans as a % of gross loans and advances 
  - personal lending                                                      2.5%        3.1% 
========================================================== 
  - wholesale lending                                                     2.0%        1.9% 
========================================================== 
  - total                                                                 2.2%        2.3% 
========================================================== 
 
Impairment allowances                                                     $bn         $bn 
  - personal lending                                                      2.4         2.9 
========================================================== 
  - wholesale lending                                                     6.6         6.7 
==========================================================             ------      ------ 
 
                                                                          9.0         9.6 
                                                                       ------      ------ 
 
Loans and advances net of impairment allowances                           980       1,015 
========================================================== 
 
 
 
 
                                30 Jun  30 Jun   31 Dec 
                                  2016    2015     2015 
                                   $bn     $bn      $bn 
For the period ended 
Loan impairment charges            2.3     1.5      2.1 
============================== 
  - personal lending               1.1     0.9      0.9 
============================== 
  - wholesale lending              1.2     0.6      1.2 
==============================  ------  ------   ------ 
 
Other credit risk provisions       0.1    (0.1)     0.2 
============================== 
 
                                   2.4     1.4      2.3 
                                ------  ------   ------ 
 

For footnote, see page 87.

Loans and advances

The following table analyses loans and advances by industry sector, and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the lending branch. The distribution of loans across geographical regions and industries remained similar to last year.

HSBC HOLDINGS PLC

61

Gross loans and advances by industry sector and by geographical region

 
 
 
                                                                         North        Latin 
                                  Europe         Asia        MENA      America      America          Total 
                                                                                                                 As a 
                                                                                                                    % 
                                                                                                                   of 
                                                                                                                total 
                                                                                                                gross 
                      Footnotes       $m           $m          $m           $m           $m             $m      loans 
Personal                         159,288      134,416       6,596       53,433        5,981        359,714       36.4 
==================== 
  - first lien 
   residential 
   mortgages                     115,637       96,304       2,372       45,687        1,976        261,976       26.5 
==================== 
  - other personal                43,651       38,112       4,224        7,746        4,005         97,738        9.9 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
Wholesale 
    Corporate and 
     commercial                  179,089      203,162      21,988       63,347       11,373        478,959       48.4 
==================== 
  - manufacturing                 35,834       32,902       2,356       16,919        2,659         90,670        9.2 
==================== 
  - international 
   trade and 
   services                       59,069       68,347       9,616       11,549        2,637        151,218       15.3 
==================== 
  - commercial real 
   estate                         23,268       31,505         606        8,077        1,266         64,722        6.5 
==================== 
  - other 
   property-related                7,637       34,987       1,654        9,448          441         54,167        5.5 
==================== 
  - government                     2,953        2,105       1,730          350          623          7,761        0.8 
==================== 
  - other commercial          2   50,328       33,316       6,026       17,004        3,747        110,421       11.1 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
    Financial                     47,018       75,969       9,641       13,658        3,749        150,035       15.2 
==================== 
  - non-bank 
   financial 
   institutions                   30,522       16,466       2,472        7,615          761         57,836        5.9 
==================== 
  - banks                         16,496       59,503       7,169        6,043        2,988         92,199        9.3 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
    Total wholesale              226,107      279,131      31,629       77,005       15,122        628,994       63.6 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
Total gross loans 
 and advances at 30 
 Jun 2016                        385,395      413,547      38,225      130,438       21,103        988,708      100.0 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
Percentage of total 
 gross loans and 
 advances                           39.0%        41.8%        3.9%        13.2%         2.1%         100.0% 
==================== 
 
Personal                         170,526      132,707       6,705       58,186        5,958        374,082       36.5 
==================== 
  - first lien 
   residential 
   mortgages                     125,544       94,606       2,258       50,117        1,986        274,511       26.8 
==================== 
  - other personal                44,982       38,101       4,447        8,069        3,972         99,571        9.7 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
Wholesale 
    Corporate and 
     commercial                  191,765      211,224      22,268       62,882       11,374        499,513       48.8 
==================== 
  - manufacturing                 39,003       34,272       2,504       17,507        2,572         95,858        9.4 
==================== 
  - international 
   trade and 
   services                       62,667       72,199       9,552       11,505        3,096        159,019       15.5 
==================== 
  - commercial real 
   estate                         26,256       32,371         690        7,032        1,577         67,926        6.7 
==================== 
  - other 
   property-related                7,323       35,206       1,908        8,982           45         53,464        5.2 
==================== 
  - government                     3,653        1,132       1,695          203          772          7,455        0.7 
==================== 
  - other commercial          2   52,863       36,044       5,919       17,653        3,312        115,791       11.3 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
    Financial                     51,969       68,321      10,239       16,308        3,996        150,833       14.7 
==================== 
  - non-bank 
   financial 
   institutions                   33,621       13,969       2,321        9,822          681         60,414        5.9 
==================== 
  - banks                         18,348       54,352       7,918        6,486        3,315         90,419        8.8 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
    Total wholesale              243,734      279,545      32,507       79,190       15,370        650,346       63.5 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
Total gross loans 
 and advances at 31 
 Dec 2015                        414,260      412,252      39,212      137,376       21,328      1,024,428      100.0 
====================             -------      -------      ------      -------      -------      ---------      ----- 
 
Percentage of total 
 gross loans and 
 advances                           40.4%        40.3%        3.8%        13.4%         2.1%         100.0% 
==================== 
 

For footnote, see page 87.

HSBC HOLDINGS PLC

62

Risk (continued)

Assets held for sale

During 1H15, gross loans and advances and related impairment allowances arising in our Brazilian operations were reclassified from 'Loans and advances to customers' and 'Loans and advances to banks' to 'Assets held for sale' on the balance sheet. Although there was a reclassification on the balance sheet, there was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'Assets held for sale'.

Loans and advances to banks and customers measured at amortised cost

 
 
 
                                                                         Impairment 
                                                                         allowances 
                                                                       on loans and 
                                      Total gross loans and advances       advances 
                                                                  $m             $m 
 
As reported                                                  988,708         (8,953) 
==================================== 
Reported in 'Assets held for sale'                            28,265         (2,220) 
====================================  ------------------------------  ------------- 
 
At 30 Jun 2016                                             1,016,973        (11,173) 
====================================  ------------------------------  ------------- 
 

At 31 December 2015, the gross loans and advances and related impairment allowances of our Brazilian operations were $23bn and $1.4bn, respectively. Gross loans and advances increased by $4.1 bn, mainly as a result of foreign exchange movements.

Credit quality of financial instruments

We assess credit quality on all financial instruments which bear credit risk. The distribution of financial instruments by credit quality is tabulated below.

Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'

 
 
 
                                       Brazil   Other    Total 
                                           $m      $m       $m 
Gross loans 
Loans and advances to customers        20,528   1,644   22,172 
=====================================  ------ 
  - personal                            6,954   1,529    8,483 
===================================== 
  - corporate and commercial           13,574     115   13,689 
=====================================  ------   -----   ------ 
 
Financial                               6,093       -    6,093 
===================================== 
  - non-bank financial institutions       761       -      761 
===================================== 
  - banks                               5,332       -    5,332 
=====================================  ------   -----   ------ 
 
 
At 30 Jun 2016                         26,621   1,644   28,265 
=====================================  ------   -----   ------ 
 
Impairment allowances 
Loans and advances to customers        (2,085)   (135)  (2,220) 
===================================== 
  - personal                             (977)    (88)  (1,065) 
===================================== 
  - corporate and commercial           (1,108)    (47)  (1,155) 
=====================================  ------   -----   ------ 
 
Financial                                   -       -        - 
==================================== 
  - non-bank financial institutions         -       -        - 
==================================== 
  - banks                                   -       -        - 
====================================   ------   -----   ------ 
 
 
At 30 Jun 2016                         (2,085)   (135)  (2,220) 
=====================================  ------   -----   ------ 
 

The table below analyses the amount of LICs arising from assets held for sale. They primarily relate to our Brazilian operations, which we sold on 1 July 2016.

Loan impairment charges and other credit risk provisions

 
 
 
                                  Total 
                                     $m 
LICs arising from: 
  - assets held for sale            748 
============================== 
  - assets not held for sale      1,618 
==============================  ------- 
 
Half-year to 30 Jun 2016          2,366 
==============================  ------- 
 

Distribution of total financial instruments exposed to credit risk by credit quality

 
 
 
                       Neither past due nor impaired 
              ----------------------------------------------- 
                                                               Past due                Total 
                                                                but not                gross  Impairment 
                 Strong     Good  Satis-factory  Sub-standard  impaired  Impaired     amount  allowances       Total 
                     $m       $m             $m            $m        $m        $m         $m          $m          $m 
 
At 30 Jun 
 2016         1,729,146  342,205        312,992        31,302    12,575    27,001  2,455,221     (11,173)  2,444,048 
============ 
At 31 Dec 
 2015         1,553,830  331,141        293,178        26,199    13,030    28,058  2,245,436     (11,027)  2,234,409 
============ 
 
                      %        %              %             %         %         %          % 
 
At 30 Jun 
 2016              70.4     13.9           12.7           1.3       0.6       1.1      100.0 
============ 
At 31 Dec 
 2015              69.2     14.7           13.1           1.2       0.6       1.2      100.0 
============ 
 

The table above shows the credit quality distribution for all assets exposed to credit risk, including the balances relating to our Brazilian operations. The increase in 'strong' assets is mainly related to increases in cash and balances at central banks, trading assets and derivative assets as a result of the market volatility at the period-end.

Within the 'Past due but not impaired' amount at 30 June 2016, 99% was less than 90 days past due. This percentage was broadly unchanged compared with 31 December 2015.

HSBC HOLDINGS PLC

63

Distribution of loans and advances held at amortised cost by credit quality

 
 
 
                                     Neither past due nor impaired 
                             --------------------------------------------- 
                                                                            Past due              Total 
                                                                             but not              gross  Impairment 
                              Strong     Good  Satis-factory  Sub-standard  impaired  Impaired   amount  allowances     Total 
                  Footnotes       $m       $m             $m            $m        $m        $m       $m          $m        $m 
At 30 Jun 2016 
Loans and 
 advances to 
 customers                3  445,645  204,657        192,404        20,375    11,509    21,919  896,509      (8,953)  887,556 
================ 
  - personal                 301,138   26,959         15,338           839     6,274     9,166  359,714      (2,443)  357,271 
================ 
  - corporate 
   and 
   commercial                112,296  162,277        168,020        19,140     4,757    12,469  478,959      (6,262)  472,697 
================ 
  - non-bank 
   financial 
   institutions               32,211   15,421          9,046           396       478       284   57,836        (248)   57,588 
================             -------  -------  -------------  ------------  --------  --------  -------  ----------   ------- 
 
Loans and 
 advances to 
 banks                        77,229    8,336          6,239           390         5         -   92,199           -    92,199 
================ 
 
At 31 Dec 2015 
Loans and 
 advances to 
 customers                3  472,691  214,152        194,393        16,836    12,179    23,758  934,009      (9,555)  924,454 
================ 
  - personal                 309,720   29,322         15,021           944     7,568    11,507  374,082      (2,879)  371,203 
================ 
  - corporate 
   and 
   commercial                127,673  168,772        171,466        15,379     4,274    11,949  499,513      (6,435)  493,078 
================ 
  - non-bank 
   financial 
   institutions               35,298   16,058          7,906           513       337       302   60,414        (241)   60,173 
================             -------  -------  -------------  ------------  --------  --------  -------  ----------   ------- 
 
Loans and 
 advances to 
 banks                        73,226   11,929          4,836           407         1        20   90,419         (18)   90,401 
================ 
 

For footnote, see page 87.

This table shows loans and advances held at amortised cost by credit quality distribution.

Impaired loans

Impaired gross loans and advances to customers and banks by industry sector

 
 
 
                     Impaired loans and advances at 30    Impaired loans and advances at 31 Dec 
                                  Jun 2016                                 2015 
                    ------------------------------------  -------------------------------------- 
                    Individually  Collectively            Individually  Collectively 
                        assessed      assessed     Total      assessed      assessed     Total 
                              $m            $m        $m            $m            $m        $m 
 
Customers                 15,017         6,618    21,635        14,482         8,974    23,456 
================== 
  - personal               2,687         6,479     9,166         2,670         8,837    11,507 
================== 
  - corporate and 
   commercial             12,330           139    12,469        11,812           137    11,949 
==================  ------------  ------------  --------  ------------  ------------  -------- 
 
Financial                    284             -       284           321             1       322 
==================  ------------  ------------  --------  ------------  ------------  -------- 
  - non-bank 
   financial 
   institutions              284             -       284           301             1       302 
================== 
  - banks                      -             -         -            20             -        20 
==================  ------------  ------------  --------  ------------  ------------  -------- 
 
 
                          15,301         6,618    21,919        14,803         8,975    23,778 
                    ------------  ------------  --------  ------------  ------------  -------- 
 

On a reported basis, during 1H16 impaired gross loans and advances declined by $1.8bn. This was mainly due to a continued run-off of the US CML portfolio of $2.2bn.

Renegotiated loans and forbearance

The most significant portfolio of renegotiated loans remained in personal loans held by HSBC Finance Corporation ('HSBC Finance') in North America. On a reported basis, during 1H16, total renegotiated loans decreased by $5.9bn. The ongoing run-off and sales of the US CML portfolio reduced

renegotiated loans by $5.4bn. In Europe renegotiated loans reduced mainly as a result of foreign exchange effects.

The following tables show the gross carrying amounts of the Group's holdings of renegotiated loans and advances to customers by industry sector, geography and credit quality classification.

HSBC HOLDINGS PLC

64

Risk (continued)

Renegotiated loans and advances to customers by geographical region

 
 
 
                                                                       North         Latin 
                                  Europe       Asia       MENA       America       America       Total 
                       Footnotes      $m         $m         $m            $m            $m          $m 
 
First lien 
 residential 
 mortgages                         1,333         62         34         5,498            31       6,958 
  - neither past due 
   nor impaired                      467         44          9         1,036            21       1,577 
  - past due but not 
   impaired                          160          5          -           627             3         795 
  - impaired                         706         13         25         3,835             7       4,586 
=====================             ------      -----      -----      --------      --------      ------ 
 
Other personal 
 lending                             300        288         19           912            34       1,553 
  - neither past due 
   nor impaired                      110        151         11           342             9         623 
  - past due but not 
   impaired                           49         14          1           152             1         217 
  - impaired                         141        123          7           418            24         713 
=====================             ------      -----      -----      --------      --------      ------ 
 
Corporate and 
 commercial                    4   4,528        739      1,369           980           390       8,006 
  - neither past due 
   nor impaired                    1,466        117        321            87            59       2,050 
  - past due but not 
   impaired                           93          1         60             -             2         156 
  - impaired                       2,969        621        988           893           329       5,800 
=====================             ------      -----      -----      --------      --------      ------ 
 
Non-bank financial 
 institutions                        276          1        271             -             -         548 
  - neither past due 
   nor impaired                       88          -        251             -             -         339 
  - past due but not 
   impaired                            -          -         17             -             -          17 
  - impaired                         188          1          3             -             -         192 
=====================             ------      -----      -----      --------      --------      ------ 
 
 
Renegotiated loans at 
 30 Jun 2016                       6,437      1,090      1,693         7,390           455      17,065 
  - neither past due 
   nor impaired                    2,131        312        592         1,465            89       4,589 
  - past due but not 
   impaired                          302         20         78           779             6       1,185 
  - impaired                       4,004        758      1,023         5,146           360      11,291 
=====================             ------      -----      -----      --------      --------      ------ 
 
 
Renegotiated loans as 
 % of total gross 
 loans to customers                  1.7%       0.3%       5.5%          5.9%          2.5%        1.9% 
===================== 
Impairment allowances 
 on renegotiated 
 loans                             1,090        233        527           729           144       2,723 
===================== 
 
 
 
 
First lien 
 residential 
 mortgages                             1,461                68                36            10,680                37            12,282 
  - neither past due 
   nor impaired                          512                47                11             3,376                27             3,973 
  - past due but not 
   impaired                              174                 5                 4             1,567                 3             1,753 
  - impaired                             775                16                21             5,737                 7             6,556 
=====================       ----------------  ----------------  ----------------  ----------------  ----------------  ---------------- 
 
Other personal 
 lending                                 298               272                33             1,054                35             1,692 
  - neither past due 
   nor impaired                          131               141                24               410                10               716 
  - past due but not 
   impaired                               51                16                 2               173                 1               243 
  - impaired                             116               115                 7               471                24               733 
=====================       ----------------  ----------------  ----------------  ----------------  ----------------  ---------------- 
 
Corporate and 
 commercial              4             5,215               599             1,411               638               506             8,369 
  - neither past due 
   nor impaired                        1,467               119               343                93               130             2,152 
  - past due but not 
   impaired                              109                 -                14                 -                 -               123 
  - impaired                           3,639               480             1,054               545               376             6,094 
=====================       ----------------  ----------------  ----------------  ----------------  ----------------  ---------------- 
 
Non-bank financial 
 institutions                            340                 4               272                 -                 -               616 
  - neither past due 
   nor impaired                          143                 -               248                 -                 -               391 
  - past due but not 
   impaired                                -                 -                24                 -                 -                24 
  - impaired                             197                 4                 -                 -                 -               201 
=====================       ----------------  ----------------  ----------------  ----------------  ----------------  ---------------- 
 
 
Renegotiated loans at 
 31 Dec 2015                           7,314               943             1,752            12,372               578            22,959 
  - neither past due 
   nor impaired                        2,253               307               626             3,879               167             7,232 
  - past due but not 
   impaired                              334                21                44             1,740                 4             2,143 
  - impaired                           4,727               615             1,082             6,753               407            13,584 
=====================       ----------------  ----------------  ----------------  ----------------  ----------------  ---------------- 
 
 
Renegotiated loans as 
 % of total gross 
 loans to customers                     1.8%              0.3%              5.6%              9.5%              3.2%              2.5% 
===================== 
Impairment allowances 
 on renegotiated 
 loans                                 1,402               193               575             1,014               155             3,339 
===================== 
 

For footnotes, see page 87.

HSBC HOLDINGS PLC

65

Loan impairment in the first half of 2016

Information in respect of loan impairment charges and other credit provisions is provided on page 27.

Loan impairment charge to the income statement by industry sector

 
 
 
                                                                     North      Latin 
                                         Europe    Asia    MENA    America    America   Total 
                              Footnotes      $m      $m      $m         $m         $m      $m 
 
Personal                                    103     152      59        135        611   1,060 
============================ 
  - first lien residential 
   mortgages                                 (3)      5       9         94          3     108 
============================ 
  - other personal                          106     147      50         41        608     952 
============================             ------   -----   -----   --------   --------   ----- 
 
Corporate and commercial                    284     185     (24)       472        290   1,207 
============================ 
  - manufacturing and 
   international trade and 
   services                                  15     134      11         41        172     373 
============================ 
  - commercial real estate 
   and other 
   property-related                          17     (33)     (8)         2         22       - 
============================ 
  - other commercial                  2     252      84     (27)       429         96     834 
============================             ------   -----   -----   --------   --------   ----- 
 
Financial                                    28      (2)     (1)        (9)         -      16 
============================             ------   -----   -----   --------   --------   ----- 
 
Total loan impairment charge 
 for the 
 half-year to 30 Jun 2016                   415     335      34        598        901   2,283 
============================             ------   -----   -----   --------   --------   ----- 
 
Personal                                    113     145      24        101        488     871 
============================ 
  - first lien residential 
   mortgages                                (32)      2      (7)        68         33      64 
============================ 
  - other personal                          145     143      31         33        455     807 
============================             ------   -----   -----   --------   --------   ----- 
 
Corporate and commercial                    214      97      21         50        216     598 
============================                                                            ----- 
  - manufacturing and 
   international trade and 
   services                                 103     109     (11)         9        175     385 
============================ 
  - commercial real estate 
   and other 
   property-related                         (10)     13      25          1         17      46 
============================ 
  - other commercial                  2     121     (25)      7         40         24     167 
============================             ------   -----   -----   --------   --------   ----- 
 
Financial                                    (6)      -     (12)        (3)        (1)    (22) 
============================             ------   -----   -----   --------   --------   ----- 
 
Total loan impairment charge 
 for the 
 half-year to 30 Jun 2015                   321     242      33        148        703   1,447 
============================             ------   -----   -----   --------   --------   ----- 
 
Personal                                    150     164      98         56        495     963 
============================ 
  - first lien residential 
   mortgages                                 25      (3)     56          2          8      88 
============================ 
  - other personal                          125     167      42         54        487     875 
============================             ------   -----   -----   --------   --------   ----- 
 
Corporate and commercial                    218     275     174        269        235   1,171 
============================ 
  - manufacturing and 
   international trade and 
   services                                  55     141     118         17        130     461 
============================ 
  - commercial real estate 
   and other 
   property-related                          43       5      24         23         30     125 
============================ 
  - other commercial                  2     120     129      32        229         75     585 
============================             ------   -----   -----   --------   --------   ----- 
 
Financial                                    20       -      (6)        (4)         1      11 
============================             ------   -----   -----   --------   --------   ----- 
 
Total loan impairment charge 
 for the 
 half-year to 31 Dec 2015                   388     439     266        321        731   2,145 
============================             ------   -----   -----   --------   --------   ----- 
 

For footnote, see page 87.

HSBC HOLDINGS PLC

66

Risk (continued)

Movement in impairment allowances on loans and advances to customers and banks

 
 
 
                                                Banks                     Customers 
                                                           --------------------------------------- 
                                         individually        Individually         Collectively 
                              Footnotes      assessed            assessed             assessed       Total 
                                                   $m                  $m                   $m          $m 
 
At 1 Jan 2016                                      18               5,402                4,153       9,573 
============================ 
Amounts written off                               (16)               (992)                (840)     (1,848) 
============================ 
Recoveries of loans and 
 advances previously written 
 off                                                -                  44                  296         340 
============================ 
Charge to income statement                         (2)              1,265                1,020       2,283 
============================ 
Exchange and other movements          5             -                (319)              (1,076)     (1,395) 
============================             ------------      --------------      ---------------      ------ 
 
At 30 Jun 2016                                      -               5,400                3,553       8,953 
============================             ------------      --------------      ---------------      ------ 
 
Impairment allowances: 
  on loans and advances to 
   customers                                                        5,400                3,553       8,953 
============================ 
  - personal                                                          479                1,964       2,443 
============================ 
  - corporate and commercial                                        4,727                1,535       6,262 
============================ 
  - non-bank financial 
   institutions                                                       194                   54         248 
============================                               --------------      ---------------      ------ 
 
  as a percentage of gross 
   loans and advances                               -%                0.6%                 0.4%        0.9% 
============================ 
  as a percentage of 
   impaired gross loans and 
   advances                                         -%               35.3%                53.7%       40.8% 
============================ 
 
 
 
 
At 1 Jan 2015                                                       49       6,195       6,142      12,386 
========================================================= 
Amounts written off                                                  -        (727)     (1,463)     (2,190) 
========================================================= 
Recoveries of loans and advances previously written off              -          23         327         350 
========================================================= 
Charge to income statement                                          (8)        488         967       1,447 
========================================================= 
Exchange and other movements                                 5      (3)       (780)     (1,432)     (2,215) 
=========================================================       ------      ------      ------      ------ 
 
At 30 Jun 2015                                                      38       5,199       4,541       9,778 
=========================================================       ------      ------      ------      ------ 
 
Impairment allowances: 
  on loans and advances to customers                                         5,199       4,541       9,740 
========================================================= 
  - personal                                                                   425       2,914       3,339 
========================================================= 
  - corporate and commercial                                                 4,587       1,540       6,127 
========================================================= 
  - non-bank financial institutions                                            187          87         274 
=========================================================                   ------      ------      ------ 
 
  as a percentage of gross loans and advances                        -%        0.5%        0.5%        0.9% 
========================================================= 
  as a percentage of impaired gross loans and advances            86.4%       36.8%       41.3%       38.8% 
========================================================= 
 
At 1 Jul 2015                                                       38       5,199       4,541       9,778 
========================================================= 
Amounts written off                                                  -        (641)     (1,363)     (2,004) 
========================================================= 
Recoveries of loans and advances previously written off              -          63         395         458 
========================================================= 
Charge to income statement                                          (3)      1,028       1,120       2,145 
========================================================= 
Exchange and other movements                                 5     (17)       (247)       (540)       (804) 
=========================================================       ------      ------      ------      ------ 
 
At 31 Dec 2015                                                      18       5,402       4,153       9,573 
=========================================================       ------      ------      ------      ------ 
 
Impairment allowances: 
  on loans and advances to customers                                         5,402       4,153       9,555 
========================================================= 
  - personal                                                                   426       2,453       2,879 
========================================================= 
  - corporate and commercial                                                 4,800       1,635       6,435 
========================================================= 
  - non-bank financial institutions                                            176          65         241 
=========================================================                   ------      ------      ------ 
 
  as a percentage of gross loans and advances                        -%        0.6%        0.5%        0.9% 
========================================================= 
  as a percentage of impaired gross loans and advances            90.0%       36.5%       46.3%       40.2% 
========================================================= 
 

For footnotes, see page 87.

HSBC HOLDINGS PLC

67

Risk (continued)

Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region

 
 
 
                                                                             Latin 
                          Europe    Asia    MENA   North America        America(6)   Total(6) 
                               %       %       %               %                 %          % 
Half-year to 30 Jun 
2016 
New allowances net of 
 allowance releases         0.32    0.23    0.34            0.99              5.40       0.59 
======================== 
Recoveries                 (0.08)  (0.04)  (0.09)          (0.05)            (0.42)     (0.08) 
========================  ------   -----   -----   -------------   ---------------   -------- 
 
Total charge for 
 impairment losses          0.24    0.19    0.25            0.94              4.98       0.51 
========================  ------   -----   -----   -------------   ---------------   -------- 
 
Amount written off net 
 of recoveries              0.32    0.12    0.99            0.48              1.40       0.33 
======================== 
 
Half-year to 30 Jun 
2015 
New allowances net of 
 allowance releases         0.27    0.18    0.32            0.29              3.65       0.39 
======================== 
Recoveries                 (0.09)  (0.04)  (0.11)          (0.06)            (0.30)     (0.08) 
========================  ------   -----   -----   -------------   ---------------   -------- 
 
Total charge for 
 impairment losses          0.18    0.14    0.21            0.23              3.35       0.31 
========================  ------   -----   -----   -------------   ---------------   -------- 
 
Amount written off net 
 of recoveries              0.22    0.09    1.67            0.57              3.19       0.40 
======================== 
 
Half-year to 31 Dec 
2015 
New allowances net of 
 allowance releases         0.35    0.29    1.81            0.53              5.49       0.57 
======================== 
Recoveries                 (0.13)  (0.05)  (0.10)          (0.05)            (0.57)     (0.10) 
========================  ------   -----   -----   -------------   ---------------   -------- 
 
Total charge for 
 impairment losses          0.22    0.24    1.71            0.48              4.92       0.47 
========================  ------   -----   -----   -------------   ---------------   -------- 
 
Amount written off net 
 of recoveries              0.29    0.15    0.31            0.32              3.31       0.34 
======================== 
 

HSBC HOLDINGS PLC

68

Risk (continued)

Wholesale lending

Wholesale lending covers the range of credit facilities

granted to sovereign borrowers, banks, non-bank financial institutions, corporate entities and commercial borrowers.

Total wholesale lending

 
 
 
                                                                                Latin 
                                     Europe     Asia    MENA  North America   America    Total 
                         Footnotes       $m       $m      $m             $m        $m       $m 
 
Corporate and 
 commercial                         179,089  203,162  21,988         63,347    11,373  478,959 
======================= 
  - manufacturing                    35,834   32,902   2,356         16,919     2,659   90,670 
======================= 
  - international trade 
   and services                      59,069   68,347   9,616         11,549     2,637  151,218 
======================= 
  - commercial real 
   estate                            23,268   31,505     606          8,077     1,266   64,722 
======================= 
  - other 
   property-related                   7,637   34,987   1,654          9,448       441   54,167 
======================= 
  - government                        2,953    2,105   1,730            350       623    7,761 
======================= 
  - other commercial             2   50,328   33,316   6,026         17,004     3,747  110,421 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Financial                            47,018   75,969   9,641         13,658     3,749  150,035 
======================= 
  - non-bank financial 
   institutions                      30,522   16,466   2,472          7,615       761   57,836 
======================= 
  - banks                            16,496   59,503   7,169          6,043     2,988   92,199 
=======================             -------  -------  ------  -------------  --------  ------- 
 
 
Gross loans at 30 Jun 
 2016                               226,107  279,131  31,629         77,005    15,122  628,994 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Impairment allowances 
on wholesale lending 
Corporate and 
 commercial                           2,494    1,345   1,034          1,059       330    6,262 
======================= 
  - manufacturing                       502      292      97            139        34    1,064 
======================= 
  - international trade 
   and services                         578      638     434            101        36    1,787 
======================= 
  - commercial real 
   estate                               538       12     145             76       110      881 
======================= 
  - other 
   property-related                     184       32     214             47        70      547 
======================= 
  - government                            2        -       1              1         2        6 
======================= 
  - other commercial                    690      371     143            695        78    1,977 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Financial                               211        9       6             22         -      248 
======================= 
  - non-bank financial 
   institutions                         211        9       6             22         -      248 
======================= 
  - banks                                 -        -       -              -         -        - 
======================              -------  -------  ------  -------------  --------  ------- 
 
 
Impairment allowances 
 at 30 Jun 2016                       2,705    1,354   1,040          1,081       330    6,510 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Corporate and 
 commercial                         191,765  211,224  22,268         62,882    11,374  499,513 
======================= 
  - manufacturing                    39,003   34,272   2,504         17,507     2,572   95,858 
======================= 
  - international trade 
   and services                      62,667   72,199   9,552         11,505     3,096  159,019 
======================= 
  - commercial real 
   estate                            26,256   32,371     690          7,032     1,577   67,926 
======================= 
  - other 
   property-related                   7,323   35,206   1,908          8,982        45   53,464 
======================= 
  - government                        3,653    1,132   1,695            203       772    7,455 
======================= 
  - other commercial             2   52,863   36,044   5,919         17,653     3,312  115,791 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Financial                            51,969   68,321  10,239         16,308     3,996  150,833 
======================= 
  - non-bank financial 
   institutions                      33,621   13,969   2,321          9,822       681   60,414 
======================= 
  - banks                            18,348   54,352   7,918          6,486     3,315   90,419 
=======================             -------  -------  ------  -------------  --------  ------- 
 
 
Gross loans at 31 Dec 
 2015                               243,734  279,545  32,507         79,190    15,370  650,346 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Impairment allowances 
on wholesale lending 
Corporate and 
 commercial                           2,735    1,256   1,157            777       510    6,435 
======================= 
  - manufacturing                       528      254     135            140        49    1,106 
======================= 
  - international trade 
   and services                         813      599     439            123        48    2,022 
======================= 
  - commercial real 
   estate                               613       35     145             76       343    1,212 
======================= 
  - other 
   property-related                     237       72     267             55         1      632 
======================= 
  - government                            6        -       -              -         2        8 
======================= 
  - other commercial                    538      296     171            383        67    1,455 
=======================             -------  -------  ------  -------------  --------  ------- 
 
Financial                               194       13      22             30         -      259 
======================= 
  - non-bank financial 
   institutions                         194       13       4             30         -      241 
======================= 
  - banks                                 -        -      18              -         -       18 
=======================             -------  -------  ------  -------------  --------  ------- 
 
 
Impairment allowances 
 at 31 Dec 2015                       2,929    1,269   1,179            807       510    6,694 
=======================             -------  -------  ------  -------------  --------  ------- 
 

For footnote, see page 87.

HSBC HOLDINGS PLC

69

On a reported basis, gross loans decreased by $21bn, mainly due to foreign exchange movements of $14bn.

The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.

Wholesale lending decreased by $6.9bn in 1H16. In North America, it decreased by $3.5bn, primarily driven by a decline in the US in 'financial'.

In Asia, there was a decline of $2.2bn overall. This consisted of decreases across 'international trade and services', 'other commercial' and 'manufacturing' totalling $9.0bn, driven by the continuation of the slowdown in trade and maturity of term loans, partly offset by a $7.2bn increase in 'financial'.

In Europe, overall balances declined by $1.7bn. In 'corporate and commercial' there was an increase in lending of $8bn which was offset by a reduction of $8bn relating to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements between overdrafts and deposits.

Personal lending

We provide a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending includes loans secured on assets such as first liens on residential property, and unsecured lending products such as overdrafts, credit cards and payroll loans.

Total personal lending

 
 
 
                                                                                Latin 
                                      Europe     Asia   MENA  North America   America    Total 
                                          $m       $m     $m             $m        $m       $m 
 
First lien residential mortgages     115,637   96,304  2,372         45,687     1,976  261,976 
=================================== 
  Of which: 
  - interest only (including 
   offset)                            37,995      922      -            162         -   39,079 
  - affordability (including ARMs)       325    3,705      -         15,608         -   19,638 
===================================  -------  -------  -----  -------------  --------  ------- 
 
Other personal lending                43,651   38,112  4,224          7,746     4,005   97,738 
  - other                             32,788   28,143  2,986          3,375     2,000   69,292 
=================================== 
  - credit cards                      10,754    9,778    894            974     1,642   24,042 
  - second lien residential 
   mortgages                             105       30      2          3,367         -    3,504 
  - motor vehicle finance                  4      161    342             30       363      900 
===================================  -------  -------  -----  -------------  --------  ------- 
 
 
Total gross loans at 30 Jun 2016     159,288  134,416  6,596         53,433     5,981  359,714 
===================================  -------  -------  -----  -------------  --------  ------- 
 
Impairment allowances on personal 
lending 
First lien residential mortgages         250       33     70            594        18      965 
Other personal lending                   619      253    172            211       223    1,478 
  - other                                359      129    141             30       104      763 
=================================== 
  - credit cards                         260      123     25             32       116      556 
  - second lien residential 
   mortgages                               -        -      -            149         -      149 
  - motor vehicle finance                  -        1      6              -         3       10 
===================================  -------  -------  -----  -------------  --------  ------- 
 
 
Total impairment allowances at 30 
 Jun 2016                                869      286    242            805       241    2,443 
===================================  -------  -------  -----  -------------  --------  ------- 
 
 
 
 
First lien residential mortgages             125,544   94,606  2,258  50,117  1,986  274,511 
=========================================== 
  Of which: 
  - interest only (including offset)          40,906      936      -     180      -   42,022 
=========================================== 
  - affordability (including ARMs)               356    3,966      -  17,041      -   21,363 
===========================================  -------  -------  -----  ------  -----  ------- 
 
Other personal lending                        44,982   38,101  4,447   8,069  3,972   99,571 
=========================================== 
  - other                                     32,862   27,682  3,147   3,284  1,816   68,791 
=========================================== 
  - credit cards                              12,115   10,189    929     996  1,780   26,009 
=========================================== 
  - second lien residential mortgages              -       33      2   3,762      -    3,797 
=========================================== 
  - motor vehicle finance                          5      197    369      27    376      974 
===========================================  -------  -------  -----  ------  -----  ------- 
 
 
Total gross loans at 31 Dec 2015             170,526  132,707  6,705  58,186  5,958  374,082 
===========================================  -------  -------  -----  ------  -----  ------- 
 
Impairment allowances on personal lending 
First lien residential mortgages                 278       29     24     991     22    1,344 
=========================================== 
Other personal lending                           667      227    214     241    186    1,535 
=========================================== 
  - other                                        401      104    180      31     80      796 
=========================================== 
  - credit cards                                 265      122     29      30    102      548 
=========================================== 
  - second lien residential mortgages              -        -      -     180      -      180 
=========================================== 
  - motor vehicle finance                          1        1      5       -      4       11 
===========================================  -------  -------  -----  ------  -----  ------- 
 
 
Total impairment allowances 31 Dec 2015          945      256    238   1,232    208    2,879 
===========================================  -------  -------  -----  ------  -----  ------- 
 

HSBC HOLDINGS PLC

70

Risk (continued)

On a reported basis, total personal lending reduced by $14bn, mainly due to adverse foreign exchange movements of $10bn and the ongoing run-off and sales of our US CML portfolio in North America of $6.7bn.

Loan impairment allowances reduced by $0.4bn, largely due to the reduction in our US CML run-off portfolio.

Loan impairment charges were $1.1bn for 1H16, $0.2bn more than 1H15 due largely to the deterioration of economic conditions in Brazil.

While the tables are presented on a reported basis, the commentary that follows is on a constant currency basis and excludes the effect of the ongoing run-off and sales of our US CML portfolio.

Total personal lending grew by $2.6bn compared with 31 December 2015, with mortgage balances increasing by $3.0bn, mainly in the UK which increased by $1.7bn reflecting the growth of the UK mortgage market in 1H16. There were increases in China of $1.0bn and Canada of $0.7bn, both as a result of business growth initiatives. The increase was partly offset by a $0.9bn reduction in Singapore following our decision to constrain the size of our mortgage portfolio in the country. In France there was a reclassification of $0.8bn from residential mortgages to commercial real estate.

The quality of both our Hong Kong and UK mortgage books remained high, with negligible defaults and impairment allowances. The average loan to value ('LTV') ratio on new mortgage lending in Hong Kong was 42% compared with an estimated 32% for the overall mortgage portfolio. The LTV ratio on new lending in the UK was 59% compared with the average of 41% for the total mortgage portfolio.

Other personal lending decreased by $0.4bn mainly due to a decrease in Switzerland of $1.3bn because of the continued repositioning of Global Private Banking. This was largely offset by a $1.9bn increase in France due to the

reclassification of certain portfolios, moving them from commercial real estate to other personal lending.

HSBC Finance

Residential mortgages, including second lien mortgages, decreased by $6.7bn to $12bn at 30 June 2016. In addition to the continued loan sales in the US CML run-off portfolio, we transferred a further $5.9bn to 'Assets held for sale' during 1H16, and these loans were mainly sold in April, May and July 2016. The average gain on sale of foreclosed properties that arose after we took title to the property was 1%.

The decrease in impairment allowances from $1.0bn at 31 December 2015 to $0.6bn at 30 June 2016 reflected reduced levels of delinquency and lower newly impaired loans and loan balances outstanding as a result of continued sale and liquidation of the portfolio.

Across the first and second lien residential mortgages in our US CML run-off portfolio, two-months-and-over delinquent balances reduced by $0.1bn to $1.0bn during 1H16, reflecting the continued portfolio run-off and loan sales.

Renegotiated real estate secured accounts in HSBC Finance reduced by $5.4bn or 50% and represented 82% at 30 June 2016 (31 December 2015: 91%) of our total renegotiated loans in North America, of which $3.2bn were classified as impaired (31 December 2015: $5.1bn). During 1H16, the aggregate number of renegotiated loans in HSBC Finance reduced due to portfolio run-off and further loan sales in the US CML portfolio.

HSBC Bank USA

In HSBC Bank USA, mortgage balances of $18bn at 30 June 2016 were broadly unchanged compared with 31 December 2015 with normal run-off being replaced with new originations. We continued to sell all new originations classed as agency-eligible in the secondary market.

Supplementary information

Gross loans and advances by industry sector

 
 
 
                                                                 31 Dec  Currency               30 Jun 
                                                                   2015    effect   Movement      2016 
                                                   Footnotes         $m        $m         $m        $m 
 
Personal                                                        374,082   (10,339)    (4,029)  359,714 
================================================= 
  - first lien residential mortgages                            274,511    (9,206)    (3,329)  261,976 
================================================= 
  - other personal                                               99,571    (1,133)      (700)   97,738 
=================================================             ---------  --------   --------   ------- 
 
Corporate and commercial                                        499,513   (11,023)    (9,531)  478,959 
================================================= 
  - manufacturing                                                95,858    (2,400)    (2,788)   90,670 
================================================= 
  - international trade and services                            159,019    (3,466)    (4,335)  151,218 
================================================= 
  - commercial real estate                                       67,926    (1,344)    (1,860)   64,722 
================================================= 
  - other property-related                                       53,464      (391)     1,094    54,167 
================================================= 
  - government                                                    7,455      (151)       457     7,761 
================================================= 
  - other commercial                                       2    115,791    (3,271)    (2,099)  110,421 
=================================================             ---------  --------   --------   ------- 
 
Financial                                                       150,833    (3,392)     2,594   150,035 
=================================================             ---------  --------   --------   ------- 
  - non-bank financial institutions                              60,414    (2,685)       107    57,836 
================================================= 
  - banks                                                        90,419      (707)     2,487    92,199 
=================================================             ---------  --------   --------   ------- 
 
 
Total gross loans and advances                                1,024,428   (24,754)   (10,966)  988,708 
=================================================             ---------  --------   --------   ------- 
 
Impaired loans and advances to customers                         23,758      (560)    (1,279)   21,919 
================================================= 
Impairment allowances on loans and advances to 
 customers                                                        9,555      (193)      (409)    8,953 
================================================= 
 

For footnote, see page 87.

HSBC HOLDINGS PLC

71

The currency effect on personal lending gross loans and advances of $10bn was made up as follows: Europe $12bn, Asia $(1.2)bn and North America $(1.2)bn. The currency effect on wholesale lending gross loans and advances of

$(14)bn was made up as follows: Europe $(16)bn, Asia $1.8bn, North America $1.3bn, Latin America $(1.0)bn and Middle East and North Africa $(0.5)bn.

Impaired loans and allowances by geographical region - reconciliation of reported and constant currency changes

 
 
 
                                             31 Dec 
                                            2015 at  Movement 
                   31 Dec                    30 Jun      on a     30 Jun 
                     2015       Currency       2016  constant       2016               Constant 
                       as    translation   exchange  currency         as   Reported    currency 
                 reported  adjustment(7)      rates     basis   reported  change(7)   change(7) 
                       $m             $m         $m        $m         $m          %           % 
Impaired loans 
Europe              9,677           (542)     9,135       (61)     9,074       (6.2)       (0.7) 
=============== 
Asia                2,375             45      2,420       344      2,764       16.4        14.2 
=============== 
Middle East and 
 North Africa       1,766            (25)     1,741       (55)     1,686       (4.5)       (3.2) 
=============== 
North America       8,930             27      8,957    (1,341)     7,616      (14.7)      (15.0) 
=============== 
Latin America       1,030            (65)       965      (186)       779      (24.4)      (19.3) 
===============  --------  -------------   --------  --------   -------- 
 
                   23,778           (560)    23,218    (1,299)    21,919       (7.8)       (5.6) 
                 --------  -------------   --------  --------   -------- 
 
Impairment 
allowances 
Europe              3,869           (176)     3,693      (119)     3,574       (7.6)       (3.2) 
=============== 
Asia                1,525             19      1,544        96      1,640        7.5         6.2 
=============== 
Middle East and 
 North Africa       1,418            (15)     1,403      (121)     1,282       (9.6)       (8.6) 
=============== 
North America       2,041             26      2,067      (181)     1,886       (7.6)       (8.8) 
=============== 
Latin America         720            (47)       673      (102)       571      (20.7)      (15.2) 
===============  --------  -------------   --------  --------   -------- 
 
                    9,573           (193)     9,380      (427)     8,953       (6.5)       (4.6) 
                 --------  -------------   --------  --------   -------- 
 

For footnote, see page 87.

HSBC HOLDINGS PLC

72

Risk (continued)

Gross loans and advances to customers by country

 
 
 
                                       First lien                             Commercial, 
                                      residential      Other  Property-     international 
                                        mortgages   personal    related   trade and other    Total 
                                               $m         $m         $m                $m       $m 
Europe                                    115,637     43,651     30,905           178,706  368,899 
=================================== 
  - UK                                    108,049     18,903     23,649           134,074  284,675 
=================================== 
  - France                                  2,871     14,267      5,417            21,631   44,186 
=================================== 
  - Germany                                     2        197        446             9,468   10,113 
=================================== 
  - Switzerland                               614      6,903        127               826    8,470 
=================================== 
  - other                                   4,101      3,381      1,266            12,707   21,455 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Asia                                       96,304     38,112     66,492           153,136  354,044 
=================================== 
  - Hong Kong                              61,221     24,103     49,082            79,831  214,237 
=================================== 
  - Australia                               9,905        753      1,869             6,519   19,046 
=================================== 
  - India                                   1,284        390        689             6,579    8,942 
=================================== 
  - Indonesia                                  60        342         71             4,816    5,289 
=================================== 
  - Mainland China                          6,591      1,358      5,795            21,451   35,195 
=================================== 
  - Malaysia                                3,039      3,372      1,973             4,251   12,635 
=================================== 
  - Singapore                               7,252      5,715      3,466             9,939   26,372 
=================================== 
  - Taiwan                                  3,972        678         81             4,267    8,998 
=================================== 
  - other                                   2,980      1,401      3,466            15,483   23,330 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Middle East and North Africa 
 (excluding Saudi Arabia)                   2,372      4,224      2,260            22,200   31,056 
=================================== 
  - Egypt                                       1        514         83             2,091    2,689 
=================================== 
  - UAE                                     1,955      2,074      1,736            13,872   19,637 
=================================== 
  - other                                     416      1,636        441             6,237    8,730 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
North America                              45,687      7,746     17,525            53,437  124,395 
=================================== 
  - US                                     28,277      4,418     12,492            39,324   84,511 
=================================== 
  - Canada                                 16,121      3,116      4,760            13,408   37,405 
=================================== 
  - other                                   1,289        212        273               705    2,479 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Latin America                               1,976      4,005      1,707            10,427   18,115 
=================================== 
  - Mexico                                  1,864      2,930      1,595             7,936   14,325 
=================================== 
  - other                                     112      1,075        112             2,491    3,790 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
 
At 30 Jun 2016                            261,976     97,738    118,889           417,906  896,509 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Europe                                    125,544     44,982     33,579           191,807  395,912 
=================================== 
  - UK                                    117,346     20,797     25,700           149,327  313,170 
=================================== 
  - France                                  3,606     12,130      6,070            20,380   42,186 
=================================== 
  - Germany                                     4        203        347             7,941    8,495 
=================================== 
  - Switzerland                               511      8,045        224               834    9,614 
=================================== 
  - other                                   4,077      3,807      1,238            13,325   22,447 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Asia                                       94,606     38,101     67,577           157,616  357,900 
=================================== 
  - Hong Kong                              60,943     24,389     50,825            80,609  216,766 
=================================== 
  - Australia                               9,297        726      1,592             6,448   18,063 
=================================== 
  - India                                   1,248        431        637             5,728    8,044 
=================================== 
  - Indonesia                                  56        346         71             4,965    5,438 
=================================== 
  - Mainland China                          5,716      1,645      6,185            23,703   37,249 
=================================== 
  - Malaysia                                2,792      3,113      1,993             4,947   12,845 
=================================== 
  - Singapore                               7,743      5,392      3,334            11,021   27,490 
=================================== 
  - Taiwan                                  3,866        629        126             5,291    9,912 
=================================== 
  - other                                   2,945      1,430      2,814            14,904   22,093 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Middle East and North Africa 
 (excluding Saudi Arabia)                   2,258      4,447      2,598            21,991   31,294 
=================================== 
  - Egypt                                       1        549        104             2,097    2,751 
=================================== 
  - UAE                                     1,854      2,286      1,833            14,199   20,172 
=================================== 
  - other                                     403      1,612        661             5,695    8,371 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
North America                              50,117      8,069     16,014            56,690  130,890 
=================================== 
  - US                                     34,382      4,813     11,435            42,439   93,069 
=================================== 
  - Canada                                 14,418      3,029      4,315            13,490   35,252 
=================================== 
  - other                                   1,317        227        264               761    2,569 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
Latin America                               1,986      3,972      1,622            10,433   18,013 
=================================== 
  - Mexico                                  1,881      2,828      1,498             7,844   14,051 
=================================== 
  - other                                     105      1,144        124             2,589    3,962 
===================================  ------------  ---------  ---------  ----------------  ------- 
 
 
At 31 Dec 2015                            274,511     99,571    121,390           438,537  934,009 
===================================  ------------  ---------  ---------  ----------------  ------- 
 

HSBC HOLDINGS PLC

73

Securitisation exposures and other structured products

The following table summarises the carrying amount of our asset-backed securities ('ABSs') exposure by categories of collateral. It includes assets held in the GB&M legacy credit portfolio with a carrying value of $13bn (31 December 2015: $15bn).

At 30 June 2016, the available-for-sale reserve in respect of ABSs was a deficit of $713m (31 December 2015: $1,021m). For 2016, the impairment write-back in respect of ABSs was $17m (31 December 2015: $85m).

Carrying amount of HSBC's consolidated holdings of ABSs

 
 
 
                                                  Designated 
                                                     at fair                           Of which 
                                                       value                       held through 
                                                     through                       consolidated 
                             Available   Held to   profit or    Loans and            structured 
                    Trading   for sale  maturity        loss  receivables   Total      entities 
                         $m         $m        $m          $m           $m      $m            $m 
 
Mortgage-related 
 assets               1,414     20,594    13,198           -          424  35,630         3,566 
  - sub-prime 
   residential           67      1,828         -           -          115   2,010           727 
  - US Alt-A 
   residential            -      1,688         6           -           47   1,741         1,576 
  - US Government 
   agency and 
   sponsored 
   enterprises: 
   MBSs                 163     14,831    13,192           -            -  28,186             - 
  - other 
   residential          708        578         -           -           92   1,378           187 
  - commercial 
   property             476      1,669         -           -          170   2,315         1,076 
==================  -------  ---------  --------  ----------  -----------  ------  ------------ 
 
Leveraged 
 finance-related 
 assets                 204      1,814         -           -          134   2,152           932 
Student 
 loan-related 
 assets                 146      2,853         -           -           18   3,017         2,576 
Other assets          1,173        787         -          36           65   2,061           458 
==================  -------  ---------  --------  ----------  -----------  ------  ------------ 
 
At 30 Jun 2016        2,937     26,048    13,198          36          641  42,860         7,532 
==================  -------  ---------  --------  ----------  -----------  ------  ------------ 
 
Mortgage-related 
 assets               1,641     22,406    14,004           1          496  38,548         4,780 
  - sub-prime 
   residential           73      2,247         -           1          132   2,453         1,075 
  - US Alt-A 
   residential            -      1,989         7           -           55   2,051         1,796 
  - US Government 
   agency and 
   sponsored 
   enterprises: 
   MBSs                 166     15,082    13,997           -            -  29,245             - 
  - other 
   residential          812        780         -           -          108   1,700           253 
  - commercial 
   property             590      2,308         -           -          201   3,099         1,656 
==================  -------  ---------  --------  ----------  -----------  ------  ------------ 
 
Leveraged 
 finance-related 
 assets                 240      2,294         -           -          149   2,683         1,310 
Student 
 loan-related 
 assets                 236      2,991         -           -           25   3,252         2,679 
Other assets          1,184        880         -          23          128   2,215           565 
==================  -------  ---------  --------  ----------  -----------  ------  ------------ 
 
At 31 Dec 2015        3,301     28,571    14,004          24          798  46,698         9,334 
==================  -------  ---------  --------  ----------  -----------  ------  ------------ 
 

HSBC HOLDINGS PLC

74

Risk (continued)

Liquidity and funding

Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. The risk arises from mismatches in the timing of cash flows.

Funding risk is the risk that funding considered to be sustainable, and therefore used to fund assets, is not sustainable over time. The risk arises when the funding needed for illiquid asset positions cannot be obtained at the expected terms and when required.

This section supersedes the information included in the Annual Report and Accounts 2015 from pages 154 to 165.

Our liquidity and funding risk management framework

The objective of the Group's internal liquidity and funding risk framework ('LFRF') is to allow it to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations.

The Group does not manage liquidity risk and funding risk centrally on a Group consolidated basis. They are managed by operating entity on a standalone basis with no implicit reliance assumed on any other Group entity unless pre-committed.

All operating entities are required to manage liquidity and funding risks in accordance with the LFRF.

On 1 January 2016, the Group introduced a new LFRF. It uses the liquidity coverage ratio ('LCR') and net stable funding ratio ('NSFR') regulatory framework as a foundation, but adds extra metrics, limits and overlays to address the risks that we consider are not adequately reflected by the regulatory framework.

The LFRF is delivered using the following key aspects:

 
 
--  stand-alone management of liquidity and funding by operating entity; 
 
 
 
--  operating entity classification by inherent liquidity risk ('ILR') categorisation; 
 
 
 
--  minimum LCR requirement depending on ILR categorisation; 
 
 
 
--  minimum NSFR requirement depending on ILR categorisation; 
 
 
 
--  legal entity depositor concentration limit; 
 
 
 
--  three-month and 12-month cumulative rolling term contractual maturity limits covering deposits 
     from banks, deposits from non-bank financial institutions and securities issued; 
 
 
 
--  annual individual liquidity adequacy assessment ('ILAA') by principal operating entity; 
 
 
 
--  minimum LCR requirement by currency; 
 
 
 
--  intra-day liquidity; and 
 
 
 
--  forward-looking funding assessments. 
 

The new internal LFRF and the risk tolerance limits have been approved by the Board on the basis of recommendations made by the Group Risk Committee, and the metrics below are being disclosed for the first time following the implementation of the new LFRF. There are therefore no comparatives.

Our ILAA process aims to:

 
 
--  identify risks that are not reflected in the LFRF and, where required, to assess additional 
     limits to be required locally; and 
 
 
 
--  validate the risk tolerance at the operating entity level by demonstrating that reverse stress 
     testing scenarios are acceptably remote and that vulnerabilities have been assessed through 
     the use of severe stress scenarios. 
 

Liquidity and funding in the first half of 2016

The liquidity position of the Group remained strong in 1H16. Our liquidity coverage ratio was 137% with unencumbered liquid assets of $474bn.

Management of liquidity and funding risk

Liquidity coverage ratio

The LCR metric is designed to promote the short-term resilience of a bank's liquidity profile, and became a minimum regulatory standard from 1 October 2015, under EC Delegated Regulation 2015/61.

It aims to ensure that a bank has sufficient unencumbered high-quality liquid assets ('HQLA') to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. HQLAs consist of cash or assets that can be converted into cash at little or no loss of value in markets.

The calculation of the LCR metric involves two key assumptions about the definition of operational deposits and the ability to transfer liquidity from non-EU legal entities.

 
 
--  We define operational deposits as transactional (current) accounts arising from the provision 
     of custody services by HSBC Security Services and Global Liquidity and Cash Management, where 
     the operational component is assessed to be the lower of the current balance and the separate 
     notional values of debits and credits across the account in the previous calculation period. 
 
 
 
--  We assume no transferability of liquidity from non-EU entities other than to the extent currently 
     permitted. This results in $108bn of HQLA being excluded from the Group's LCR. 
 

On the basis of these assumptions, we reported to the UK's Prudential Regulation Authority ('PRA') a Group EC LCR at 30 June 2016 of 137%.

The ratio of total consolidated HQLAs to the EC LCR denominator at 30 June 2016 was 169%, reflecting the additional $108bn of HQLAs excluded from the Group LCR.

The liquidity position of the Group can also be represented by the stand-alone ratios of each of our principal operating entities. The Board and the Risk Management Meeting of the Group Management Board declare the initial criterion for categorising an operating entity as a principal entity is based on its material balance sheet size.

The table below displays the individual LCR levels for our principal operating entities on an EC LCR Delegated Regulation basis. The ratios shown for operating entities in non-EU jurisdictions can vary from their local LCR measures due to differences in the way non-EU regulators have implemented the Basel III recommendations.

HSBC HOLDINGS PLC

75

Operating entities' LCRs

 
 
 
                                                                                     At 
                                                                                 30 Jun 
                                                                    Footnotes      2016 
                                                                                      % 
HSBC UK liquidity group                                                     8       126 
================================================================== 
The Hongkong and Shanghai Banking Corporation - Hong Kong Branch            9       198 
================================================================== 
The Hongkong and Shanghai Banking Corporation - Singapore Branch            9       206 
================================================================== 
HSBC Bank USA                                                                       113 
================================================================== 
HSBC France                                                                         134 
================================================================== 
Hang Seng Bank                                                                      246 
================================================================== 
HSBC Bank Canada                                                                    143 
================================================================== 
HSBC Bank China                                                                     180 
================================================================== 
HSBC Middle East - UAE branch                                                       251 
================================================================== 
HSBC Mexico                                                                         166 
================================================================== 
HSBC Private Bank                                                                   188 
================================================================== 
 

For footnotes, see page 87.

At 30 June 2016, all the Group's principal operating entities were within the risk tolerance level established by the Board and applicable under the new internal framework.

Net stable funding ratio

The NSFR requires institutions to maintain sufficient stable funding relative to required stable funding, and reflects a bank's long-term funding profile (funding with a term of more than a year). It is designed to complement the LCR.

The European calibration of NSFR is pending following the Basel Committee's final recommendation in October 2014. We calculate NSFR in line with the relevant text (Basel Committee on Banking Supervision publication 295), pending its implementation in Europe. This calculation requires various interpretations of the text as it stands, and therefore HSBC's NSFR may not be directly comparable with the ratios of other institutions.

The table below displays the individual NSFR levels for the principal HSBC operating entities on a BCBS295 basis.

Operating entities' NSFRs

 
 
 
                                                                                            At 
                                                                                        30 Jun 
                                                                    Footnotes             2016 
                                                                                             % 
HSBC UK liquidity group                                                     8              118 
================================================================== 
The Hongkong and Shanghai Banking Corporation - Hong Kong Branch            9              164 
================================================================== 
The Hongkong and Shanghai Banking Corporation - Singapore Branch            9              120 
================================================================== 
HSBC Bank USA                                                                              115 
================================================================== 
HSBC France                                                                                117 
================================================================== 
Hang Seng Bank                                                                             161 
================================================================== 
HSBC Bank Canada                                                                           137 
================================================================== 
HSBC Bank China                                                                            146 
================================================================== 
HSBC Middle East - UAE Branch                                                              141 
================================================================== 
HSBC Mexico                                                                                127 
================================================================== 
HSBC Private Bank                                                                          149 
================================================================== 
 

For footnotes, see page 87.

At 30 June 2016, all the Group's principal operating entities were within the risk tolerance level established by the Board and applicable under the new internal framework.

Depositor Concentration and Term Funding Maturity Concentration

The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within each deposit segment. The validity of these assumptions is challenged if the underlying depositors do not represent a large enough portfolio so that a depositor concentration exists.

Operating entities are exposed to term re-financing concentration risk if the current maturity profile results in future maturities being overly concentrated in any defined period.

At 30 June 2016, all principal operating entities were within the risk tolerance levels set for depositor concentration and term funding maturity concentration. These risk tolerances were established by the Board and are applicable under the LFRF.

Liquid assets of HSBC's principal operating entities

The table below shows the unweighted liquidity value of assets categorised as liquid and used for the purposes of calculating the LCR metric.

The level of liquid assets reported reflects the stock of unencumbered liquid assets at the reporting date, using the regulatory definition of liquid assets.

Liquid assets are held and managed on a stand-alone operating entity basis. Most of the liquid assets shown are held directly by each operating entity's Balance Sheet Management ('BSM') department, primarily for the purpose of managing liquidity risk, in line with the LFRF.

The liquid asset buffer may also include securities held in held-to-maturity portfolios. In order to qualify as part of the liquid asset buffer, all held-to-maturity portfolios must have a deep and liquid repo market in the underlying security.

Liquid assets also include any unencumbered liquid asset held outside BSM for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to BSM.

HSBC HOLDINGS PLC

76

Risk (continued)

Liquid assets of HSBC's principal entities

 
 
 
                                                                                 Recognised at 30 Jun 2016 at: 
                                                                               --------------------------------- 
                                                                                      Group and   entity level 
                                                                    Footnotes      entity level           only 
                                                                                             $m             $m 
HSBC UK liquidity group                                                     8 
================================================================== 
  Level 1                                                                               164,116        164,116 
================================================================== 
  Level 2a                                                                                4,145          4,145 
================================================================== 
  Level 2b                                                                                  932            932 
==================================================================             ----------------  ------------- 
 
                                                                                        169,193        169,193 
                                                                               ----------------  ------------- 
 
The Hongkong and Shanghai Banking Corporation - Hong Kong Branch            9 
================================================================== 
  Level 1                                                                                67,885        123,349 
================================================================== 
  Level 2a                                                                                7,169          7,169 
================================================================== 
  Level 2b                                                                                3,283          3,283 
================================================================== 
 
                                                                                         78,337        133,801 
                                                                               ----------------  ------------- 
 
Hang Seng Bank 
================================================================= 
  Level 1                                                                                18,485         35,702 
================================================================== 
  Level 2a                                                                                1,862          1,862 
================================================================== 
  Level 2b                                                                                  207            207 
================================================================== 
 
                                                                                         20,554         37,771 
                                                                               ----------------  ------------- 
 
HSBC Bank USA 
================================================================= 
  Level 1                                                                                57,320         66,455 
================================================================== 
  Level 2a                                                                               13,100         13,100 
================================================================== 
  Level 2b                                                                                    4              4 
================================================================== 
 
                                                                                         70,424         79,559 
                                                                               ----------------  ------------- 
 
Total of HSBC's other principal entities                                   10 
================================================================== 
  Level 1                                                                                73,363         87,046 
================================================================== 
  Level 2a                                                                                6,741          6,741 
================================================================== 
  Level 2b                                                                                  214            214 
================================================================== 
 
                                                                                         80,318         94,001 
                                                                               ----------------  ------------- 
 

For footnotes, see page 87.

Sources of funding

Our primary sources of funding are customer current accounts and customer savings deposits payable on demand or at short notice. We issue wholesale securities (secured and unsecured) to supplement our customer deposits and change the currency mix, maturity profile or location of our liabilities.

The level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed into liquid assets, cash and balances with central banks and financial investments, as required by the LFRF.

Loans and other advances to banks continued to exceed deposits by banks.

HSBC HOLDINGS PLC

77

Consolidated funding sources and uses

 
 
 
                                                            At 
                                                  ---------------------- 
                                                     30 Jun     31 Dec 
                                                       2016       2015 
                                                         $m         $m 
Sources 
Customer accounts                                 1,290,958  1,289,586 
================================================ 
 
Deposits by banks                                    69,900     54,371 
================================================ 
 
Repurchase agreements 
 - non-trading                                       98,342     80,400 
================================================ 
 
Debt securities in issue                             87,673     88,949 
================================================ 
 
Liabilities of disposal groups held for sale         43,705     36,840 
================================================ 
 
Subordinated liabilities                             21,669     22,702 
================================================ 
 
Financial liabilities designated at fair value       78,882     66,408 
================================================ 
 
Liabilities under insurance contracts                73,416     69,938 
================================================ 
 
Trading liabilities                                 188,698    141,614 
================================================ 
  - repos                                               957        442 
================================================ 
  - stock lending                                     8,487      8,859 
================================================ 
  - settlement accounts                              36,173     10,530 
================================================ 
  - other trading liabilities                       143,081    121,783 
================================================  ---------  --------- 
 
Total equity                                        198,297    197,518 
================================================  ---------  --------- 
 
                                                  2,151,540  2,048,326 
                                                  ---------  --------- 
 
 
 
 
                                                                          At 
                                                                ---------------------- 
                                                                   30 Jun     31 Dec 
                                                                     2016       2015 
                                                                       $m         $m 
Uses 
Loans and advances to customers                                   887,556    924,454 
============================================================== 
 
Loans and advances to banks                                        92,199     90,401 
============================================================== 
 
Reverse repurchase agreements - non-trading                       187,826    146,255 
============================================================== 
Assets held for sale                                               50,305     43,900 
============================================================== 
 
Trading assets                                                    280,295    224,837 
============================================================== 
    - reverse repos                                                 3,634        438 
============================================================== 
    - stock borrowing                                              11,278      7,118 
============================================================== 
    - settlement accounts                                          40,092     12,127 
============================================================== 
    - other trading assets                                        225,291    205,154 
==============================================================  ---------  --------- 
 
Financial investments                                             441,399    428,955 
============================================================== 
 
Cash and balances with central banks                              128,272     98,934 
============================================================== 
 
Net deployment in other balance sheet assets and liabilities       83,688     90,590 
==============================================================  ---------  --------- 
 
                                                                2,151,540  2,048,326 
                                                                ---------  --------- 
 

Market risk

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.

There were no material changes to the policies and practices for the management of market risk described in the Annual Report and Accounts 2015.

A summary of our market risk management framework including current policies is provided on page 221 of the Annual Report and Accounts 2015.

Market risk in the first half of 2016

Global markets were influenced by the change in outlook for future rate rises in the US. Yields in major economies fell, with the stock of government debt trading at negative yields increasing substantially.

In China, concerns about a slowdown in the economy led to concerns about a further depreciation of the renminbi.

Towards the end of the reporting period, volatility increased substantially due to the referendum decision in the UK to leave the European Union.

Trading value at risk ('VaR'), before the effects of portfolio diversification benefits, increased. Overall, it decreased slightly to 30 June after including the effects of portfolio diversification benefits. Non-trading VaR increased slightly during 1H16.

Trading portfolios

Value at risk of the trading portfolios

Trading VaR predominantly resides within Global Markets. The VaR for trading activity at 30 June 2016 was slightly lower than at 31 December 2015 due primarily to declines in equity and credit spread trading VaR components largely offset by increases in interest rate and foreign exchange trading VaR components, and an increase in portfolio diversification benefits.

The Group trading VaR for the half-year is shown in the table on the next page.

HSBC HOLDINGS PLC

78

This information is provided by RNS

The company news service from the London Stock Exchange

END

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