Annual Report and Accounts 2023 - Financial statements

Unlocking a world of travel freedom

We have continued to build our suite of products aimed at

internationally minded customers, with the launch of the

TravelOne credit card.

The card, which in May 2023 initially launched in Singapore,

Malaysia and Vietnam, allows customers to earn extra reward

points for travel and cross-border spending. They can then

redeem them instantly with 17 international airline programmes

and 20,000 hotel partners – a ﬁrst in the markets where it has

launched.

TravelOne builds on our wealth strategy and supports our

ambitions to grow our cross-border international customer

franchise and unsecured lending business in south Asia.

The ﬁnancial statements provide detailed

information and notes on our income,

balance sheet, cash ﬂows and changes

in equity, alongside a report from our

independent auditors.

318 Report of Independent Registered Public

Accounting Firm to the Board of Directors

and Shareholders of HSBC Holdings plc

329 Financial statements

341 Notes on the ﬁnancial statements

Financial

statements

317

HSBC Holdings plc Annual Report and Accounts 2023

Independent auditors’ report to the members of HSBC

Holdings plc

Report on the audit of the financial statements

Opinion

In our opinion, HSBC Holdings plc’s group financial statements and parent company financial statements (the “financial statements”):

– give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2023 and of the group’s and

parent company’s profit and the group’s and parent company’s cash flows for the year then ended;

– have been properly prepared in accordance with UK-adopted international accounting standards; and

– have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Accounts 2023 (the ’Annual Report’), which comprise: the

consolidated and parent company balance sheets as at 31 December 2023; the consolidated and parent company income statements, the

consolidated and parent company statements of comprehensive income, the consolidated and parent company statements of changes in

equity, the consolidated and parent company statements of cash flows for the year then ended; and the notes to the financial statements,

comprising material accounting policy information and other explanatory information. Certain notes to the financial statements have been

presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial

statements and are identified as ‘(Audited)’. The relevant disclosures are included in the Risk review section on pages 135 to 237 and the

Directors’ remuneration report disclosures on pages 279 to 305.

Our opinion is consistent with our reporting to the Group Audit Committee (’GAC’).

Separate opinion in relation to international financial reporting standards

adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the

European Union

As explained in note 1.1(a) to the financial statements, the group and parent company, in addition to applying UK-adopted international

accounting standards, have also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it

applies in the European Union.

In our opinion, the group and parent company financial statements have been properly prepared in accordance with international financial

reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Separate opinion in relation to International Financial Reporting Standards as

issued by the International Accounting Standards Board

As explained in note 1.1(a) to the financial statements, the group and parent company, in addition to applying UK-adopted international

accounting standards, have also applied international financial reporting standards as issued by the International Accounting Standards Board

(’IFRS Accounting Standards’).

In our opinion, the group and parent company financial statements have been properly prepared in accordance with IFRS Accounting Standards.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”), International Standards on Auditing issued by

the International Auditing and Assurance Standards Board (“ISAs”) and applicable law. Our responsibilities under ISAs (UK) and ISAs are further

described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we

have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in

the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants

(‘IESBA Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by either the FRC’s Ethical Standard or Article 5(1) of

Regulation (EU) No 537/2014 were not provided to the parent company or its controlled undertakings.

Other than those disclosed in note 6, we have provided no non-audit services to the parent company or its controlled undertakings in the period

under audit.

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

318 HSBC Holdings plc Annual Report and Accounts 2023

Our audit approach

Overview

Audit scope

– This was the fifth and final year that it has been my responsibility to form this opinion on behalf of PricewaterhouseCoopers LLP, who you

first appointed on 31 March 2015 in relation to that year‘s audit. In addition to forming this opinion, in this report we have also provided

information on how we approached the audit, how it changed from the previous year and details of the significant discussions that we had

with the GAC.

Key audit matters

– Expected credit losses - Impairment of loans and advances (group)

– Impairment of investment in associate - Bank of Communications Co., Ltd (‘BoCom‘) (group)

– Investments in subsidiaries (parent company)

– Valuation of defined benefit pension obligations (group)

Materiality

– Overall group materiality: US$1.6bn (2022: US$1bn) based on 5% of profit before tax adjusted for notable items.

– Overall parent company materiality: US$1.5bn (2022: US$950m) based on 0.75% of total assets. This would result in an overall materiality of

US$2.1bn and was therefore reduced below the group materiality.

– Performance materiality: US$1.2bn (2022: US$750m) (group) and US$1.1bn (2022: US$712m) (parent company).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial

statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)

identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;

and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were

addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a

separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

Held for sale accounting (group), which was a key audit matter last year, is no longer included because the risk has reduced following the

completion of the sale of the retail banking operations in France. Otherwise, the key audit matters below are consistent with last year.

HSBC Holdings plc Annual Report and Accounts 2023 319

Financial statements

Expected credit losses – Impairment of loans and advances (group)

Nature of the key audit matter

Determining expected credit losses (‘ECL’) involves management judgement and is subject to a high degree of estimation uncertainty.

Management makes various assumptions when estimating ECL. The significant assumptions that we focused on in our audit included those with

greater levels of management judgement and for which variations had the most significant impact on ECL. These included assumptions made in

determining economic scenarios and their probability weightings (specifically the central and downside scenarios given these have the most material

impact on ECL) and estimating discounted cash flows for material credit impaired exposures in relation to the mainland China commercial real estate

portfolio.

The level of estimation uncertainty and judgement has remained high during 2023 as a result of the uncertainties in the macroeconomic and

geopolitical environment, persistently high levels of inflation in some territories and the rising global interest rate environment, as well as

developments in mainland China’s commercial real estate sector and economy more broadly.

Macroeconomic conditions vary between territories and industries, leading to uncertainty around judgements made in determining the severity and

probability weighting of economic scenarios used in ECL models.

The modelling methodologies used to estimate ECL are developed using historical experience. The impact of the prevailing macroeconomic conditions

has resulted in certain limitations in the reliability of these methodologies to forecast the extent and timing of future customer defaults and therefore

estimate ECL. In addition, modelling methodologies do not incorporate all factors that are relevant to estimating ECL, such as the differentiated impact

of economic conditions on certain industry sectors. These limitations are addressed with management judgemental adjustments, the measurement of

which is inherently judgemental and subject to estimation uncertainty.

Matters discussed with the Group Audit Committee

We held discussions with the GAC covering governance and controls over ECL, with a significant focus on the uncertain prevailing macroeconomic

conditions and developments in mainland China’s commercial real estate sector. We discussed a number of areas, including:

– the severity of economic scenarios, and their related probability weightings, across territories;

– significant assumptions used to estimate the discounted cash flow projections for defaulted exposures in relation to the mainland China commercial

real estate portfolio;

– assumptions made in determining judgemental management adjustments; and

– the disclosures made in relation to ECL.

How our audit addressed our key audit matter

We assessed the design and effectiveness of governance and controls over the estimation of ECL. We observed management’s review and challenge

in governance forums for (1) the determination of economic scenarios and their probability weightings, and (2) the assessment of ECL for Retail and

Wholesale portfolios, including the assessment of management judgemental adjustments.

We also tested controls over:

– model validation and monitoring;

– the identification of credit impaired triggers;

– the input of critical data into source systems and the flow and transformation of critical data from source systems to impairment models and

management judgemental adjustments;

– the calculation and approval of management judgemental adjustments to modelled outcomes; and

– approval of significant individual impairments.

We involved our economic experts in assessing the significant assumptions made in determining the severity and probability weighting of economic

scenarios. These assessments considered the sensitivity of ECL to variations in the severity and probability weighting of economic scenarios. We

involved our modelling specialists in assessing the appropriateness of the significant assumptions and methodologies used for models and certain

management judgemental adjustments. We independently re-performed the calculations for a sample of those models and certain management

judgemental adjustments. In respect of the mainland China commercial real estate portfolio, we involved our business recovery experts in assessing

the discounted cash flows for a sample of credit impaired exposures. We further considered whether the judgements made in selecting the significant

assumptions would give rise to indicators of possible management bias.

In addition, we performed substantive testing over:

– the compliance of ECL methodologies and assumptions with the requirements of IFRS 9;

– a sample of critical data used in ECL models and to estimate management judgemental adjustments; and

– assumptions and critical data for a sample of credit impaired wholesale exposures.

We evaluated and tested the audited Credit Risk disclosures made in the Annual Report.

Relevant references in the Annual Report and Accounts 2023

– Audited credit risk disclosures

– Group Audit Committee Report

– Note 1.2(d):Financial instruments measured at amortised cost

– Note 1.2(i): Impairment of amortised cost and FVOCI financial assets

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

320 HSBC Holdings plc Annual Report and Accounts 2023

Impairment of investment in associate – Bank of Communications Co., Ltd (‘BoCom’) (group)

Nature of the key audit matter

At 31 December 2023, the fair value of the investment in BoCom, based on the share price, had been lower than the carrying amount for a number of

years. This is an indicator of potential impairment. An impairment test was performed by management, with supporting sensitivity analysis, using a

value in use (‘VIU’) model. On this basis, the investment in BoCom was impaired by US$3.0bn. The carrying value of the investment in BoCom

amounts to US$21.2bn at 31 December 2023.

The methodology applied in the VIU model is dependent on various assumptions, both short term and long term in nature. These assumptions, which

are subject to estimation uncertainty, are derived from a combination of management’s judgement, analysts’ forecasts, market data or other relevant

information.

The assumptions that we focused our audit on were those with greater levels of management judgement and subjectivity, and for which variations had

the most significant impact on the VIU. Specifically, these significant assumptions included:

– the discount rate;

– short term assumptions for operating income growth rate, loans and advances to customers growth rate, cost-income ratio, and expected credit

losses as a percentage of loans and advances to customers;

– long-term assumptions for profit and asset growth rates, expected credit losses as a percentage of loans and advances to customers, and effective

tax rates; and

– capital related assumptions (risk-weighted assets as a percentage of total assets and capital adequacy ratios).

Matters discussed with the Group Audit Committee

We discussed the appropriateness of the methodology, its consistent application period over period and significant assumptions with the GAC. We

also discussed the disclosures made in relation to BoCom, including the use of sensitivity analysis to explain estimation uncertainty.

How our audit addressed our key audit matter

We had oversight of the audit work performed by our component audit team in Hong Kong in relation to the impairment assessment of BoCom. This

work included:

– testing controls in place over the significant assumptions, the methodology and its consistent application period over period used to determine the

VIU, assessing the appropriateness of the methodology used, its application, and the mathematical accuracy of the calculations;

– challenging the appropriateness of the significant assumptions and, where relevant, their interrelationships;

– obtaining evidence to corroborate and challenge the data supporting significant assumptions, which included past experience, external market

information, third-party sources including analyst reports, information from BoCom management and historical publicly available BoCom financial

information;

– determining a reasonable range for the discount rate assumption, with the assistance of our valuation experts, and comparing it to the discount rate

used by management;

– assessing whether the judgements made in determining the significant assumptions would give rise to indicators of possible management bias; and

– evaluating and testing the disclosures in relation to BoCom in the Annual Report.

We observed certain meetings alongside the component auditor, management and BoCom management to identify facts and circumstances impacting

significant assumptions relevant to the determination of the VIU.

Representations were obtained from management that assumptions used were consistent with information currently available to the group.

Relevant references in the Annual Report and Accounts 2023

– Group Audit Committee Report

– Note 1.2(a): Interests in associates and joint arrangements

– Note 18: Interests in associates and joint ventures

HSBC Holdings plc Annual Report and Accounts 2023 321

Financial statements

Investments in subsidiaries (parent company)

Nature of the key audit matter

Management reviewed investments in subsidiaries for indicators of impairment and indicators that impairment charges recognised in prior periods may

no longer exist or may have decreased in accordance with IAS 36 as at 31 December 2023. Where indicators have been identified management

estimated the recoverable amount using the higher of value in use (‘VIU‘) or fair value less cost to sell.

The methodology used to estimate the recoverable amount is dependent on various assumptions, both short term and long term in nature. These

assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by

management and market data. The significant assumptions that we focused our audit on were those with greater levels of management judgement

and for which variations had the most significant impact on the recoverable amount. Specifically, these included:

– HSBC’s business plan for 2024 to 2028 focusing on revenue, cost and expected credit loss forecasts;

– regulatory capital requirements;

– long term growth rates; and

– discount rates.

Management’s assessment resulted in an impairment charge of US$5.5bn in relation to the investment in HSBC Overseas Holdings (UK) Limited

(‘HOHU’), which is an intermediate holding company of certain businesses in North America. This resulted in investment in subsidiaries of US$159bn

at 31 December 2023.

Matters discussed with the Group Audit Committee

We discussed the impairment charge for HOHU, the appropriateness of methodologies used and significant assumptions with the GAC, giving

consideration to the macroeconomic outlook and HSBC’s strategy.

How our audit addressed our key audit matter

We assessed the design and tested the effectiveness of controls in place over significant assumptions and the model used to determine the

recoverable amounts. We assessed the appropriateness of the methodology used, and tested the mathematical accuracy of the calculations, to

estimate the recoverable amounts.

In respect of the significant assumptions, our testing included the following:

– challenging management’s business plan and the prospects for HSBC’s businesses, as well as considering the achievement of historic forecasts;

– obtaining and evaluating evidence relating to significant assumptions, from a combination of historical experience and external market and other

financial information;

– assessing whether the cash flows included in the model were in compliance with the relevant accounting standard;

– assessing the sensitivity of the recoverable amount to reasonable variations in significant assumptions, both individually and in aggregate; and

– determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the

discount rate used by management.

We evaluated and tested the disclosures made in the Annual Report in relation to investment in subsidiaries.

Relevant references in the Annual Report and Accounts 2023

– Group Audit Committee Report

– Note 1.2(a): Investments in subsidiaries

– Note 19: Investments in subsidiaries

Valuation of defined benefit pensions obligations (group)

Nature of the key audit matter

The group has a defined benefit obligation of US$27.0bn, of which US$19.8bn relates to HSBC Bank (UK) pension scheme (‘the principal plan’).

The valuation of the defined benefit obligation for the principal plan is dependent on a number of actuarial assumptions. Management uses an actuarial

expert to determine the valuation of the defined benefit obligations. The valuation methodology uses a number of market based inputs and other

financial and demographic assumptions. The significant assumptions that we focused our audit on were those with greater levels of management

judgement and for which variations had the most significant impact on the liability. Specifically, these included the discount rate, inflation rate and

mortality rate.

Matters discussed with the Group Audit Committee

We discussed with the GAC the methodologies and significant assumptions used by management to determine the value of the defined benefit

obligation.

How our audit addressed our key audit matter

We assessed the design and tested the effectiveness of governance and controls in place over the methodologies and the significant assumptions,

including those in relation to the use of management’s experts. We also evaluated the objectivity and competence of management’s expert involved in

the valuation of the defined benefit obligation of the principal plan.

We assessed the appropriateness of the methodology used, and tested the accuracy of the calculation, to estimate the liability. In respect of the

significant assumptions, we used our actuarial experts to understand the judgements made by management and their actuarial expert in determining

the significant assumptions and compared these assumptions to our independently compiled expected ranges based on market observable indices and

the knowledge and opinions of our actuarial experts.

We evaluated and tested the disclosures made in the Annual Report in relation to the defined benefit pension obligation.

Relevant references in the Annual Report and Accounts 2023

– Group Audit Committee Report

– Note 1.2(k): Post-employment benefit plans

– Note 5: Employee compensation and benefits

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

322 HSBC Holdings plc Annual Report and Accounts 2023

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a

whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which

they operate.

The risks that HSBC faces are diverse, with the interdependencies between them being numerous and complex. In performing our risk

assessment we engaged with a number of stakeholders to ensure we appropriately understood and considered these risks and their

interrelationships. This included stakeholders within HSBC and our own experts within PwC. This engagement covered external factors across

the geopolitical, macroeconomic and regulatory and accounting landscape, the impact of climate change risk as well as the internal environment

at HSBC, driven by strategy and transformation.

We evaluated and challenged management‘s assessment of the impact of climate change risk, which is set out on page 44, including their

conclusion that there is no material impact on the financial statements. In making this evaluation we considered management’s use of stress

testing and scenario analysis to arrive at the conclusion that there is no material impact on the financial statements. We considered

management's assessment on the areas in the financial statements most likely to be impacted by climate risk, including:

– the impact on ECL on loans and advances to customers, for both physical and transition risk;

– the forecast cashflows from management’s five year business plan and long term growth rates used in estimating recoverable amounts as

part of impairment assessments of investments in subsidiaries, goodwill and intangible assets;

– the impact of climate related terms on the solely payments of principal and interest test for classification and measurement of loans and

advances to customers; and

– climate risks relating to contingent liabilities as HSBC faces increased reputational, legal and regulatory risk as it progresses towards its

climate ambition.

HSBC’s progress on their ESG targets is not included within the scope of this audit. We were engaged separately to provide independent

limited assurance to the Directors over the following ESG data:

– the 2021 and 2022 on-balance sheet financed emissions for 6 sectors (page 61);

– the 2020 thermal coal financing drawn balance exposure (page 67) and the 2020 thermal coal mining on-balance sheet financed emissions

(page 61);

– the 2019, 2020, 2021 and 2022 off balance facilitated emissions for 2 sectors (page 61);

– the cumulative progress made by HSBC on providing and facilitating sustainable financing and investments (page 49); and

– HSBC’s own operations scope 1, 2 and 3 (limited to business travel) greenhouse gas emissions data for 2023 (page 64); and supply chain

greenhouse gas emissions for purchased goods and services, and capital goods for 2023 (page 64).

The work performed for a limited assurance report is substantially less than the work performed for our financial audit, which provides

reasonable assurance.

Scoping

Through our risk assessment, we tailored our determination as to which entities and balances we needed to perform testing over to support our

group opinion, taking into consideration the complex and disaggregated group structure, the accounting processes and controls as well as the

industry in which they operate. The risks of material misstatement can be reduced to an acceptable level by testing the most financially

significant entities within the group and those that drive particular significant risks identified as part of our risk assessment. This ensures that

sufficient coverage has been obtained for each financial statement line item (’FSLI’). We continually assessed risks and changed the scope of

our audit where necessary.

Our risk assessment and scoping identified certain entities (collectively the ’Significant Subsidiaries’) for which we obtained audit opinions. We

obtained full scope audit opinions for the consolidated financial position and performance of The Hongkong and Shanghai Banking Corporation

Limited, HSBC Bank plc, and HSBC North America Holdings Inc. We also obtained full scope audit opinions for the company financial position

and performance of HSBC UK Bank plc, HSBC Bank Canada and HSBC Mexico S.A. Banco. We obtained audit opinions over specific balances

for HSBC Bank Middle East Limited - UAE Operations and the HSBC UK Bank plc group. The audits for HSBC Bank plc and HSBC UK Bank plc

were performed by other PwC teams in the UK. All other audits were performed by other PwC network firms.

Group-wide audit approach

HSBC has entity level controls that have a pervasive influence across the group, as well as other global and regional governance and controls

over aspects of financial reporting, such as those operated by the Global Risk function for expected credit losses. A significant amount of IT and

operational processes and controls relevant to financial reporting are undertaken in operations centres run by Digital Business Services (‘DBS‘).

Whilst these operations centres are not separate components, the IT and operational processes and controls are relevant to the financial

information of the Significant Subsidiaries. Financial reporting processes and controls are also performed centrally in HSBC‘s Group Finance

function and finance operation centres (‘Finance Operations’), including the impairment assessment of goodwill and intangible assets, held for

sale classifications and the consolidation of the group‘s results, the preparation of financial statements, and management‘s oversight controls

relevant to the group‘s financial reporting.

Group-wide processes or processes in DBS and Finance Operations are subject to specified audit procedures or an audit over specific FSLIs.

These procedures primarily relate to testing of IT general controls, IT dependencies, forward looking economic scenarios for ECL, operating

expenses, intangible assets, valuation of financial instruments, existence testing of financial instruments, intercompany eliminations,

reconciliations and consolidation as well as payroll. For these areas, we either performed audit work ourselves, or directed and provided

oversight of the audit work performed by PwC teams in the UK, Poland, China, Sri Lanka, Malaysia, India, Mexico and the Philippines. Some of

this work was relied upon by the PwC teams auditing the Significant Subsidiaries. This audit work, together with analytical review procedures

and assessing the outcome of local external audits, also mitigated the risk of material misstatement for balances in entities that were not part of

a Significant Subsidiary.

HSBC Holdings plc Annual Report and Accounts 2023 323

Financial statements

Significant Subsidiaries audit approach

In March 2023, we held a meeting in Hong Kong with the partners and senior staff from the group audit team and certain PwC teams who

undertake audits of the Significant Subsidiaries and the operations centres. The meeting focused primarily on our approach to auditing HSBC’s

businesses, changes at HSBC and in our PwC teams, and how we continue to innovate and improve the quality of the audit with a focus on

technology and our global delivery model. We also discussed our significant audit risks.

We asked the partners and teams reporting to us on the Significant Subsidiaries to work to assigned materiality levels reflecting the size of the

operations they audited. The overall materiality levels ranged from US$107m to US$1.0bn. Certain Significant Subsidiaries were audited to a

local statutory audit materiality that was a lower level than our allocated group materiality.

We designed global audit approaches for the products and services that substantially make up HSBC's global businesses, such as lending,

deposits and derivatives. These approaches were provided to the partners and teams performing audit testing for the Significant Subsidiaries.

We were in active dialogue throughout the year with the component auditors of the Significant Subsidiaries, including consideration of how they

planned and performed their work. Senior members of our team undertook at least one in-person site visit where a full scope audit was

requested and we had oversight over certain areas of audit work performed. We attended Audit Committee meetings for some of the

Significant Subsidiaries. We also attended meetings with management for each of these Significant Subsidiaries at the year end.

The audit of The Hongkong and Shanghai Banking Corporation Limited in Hong Kong relied upon work performed by other teams in Hong Kong

and the PwC network firms in India, mainland China and Singapore. Similarly, the audit of HSBC Bank plc in the UK relied upon work performed

by other teams in the UK and the PwC network firms in France and Germany. We considered how the audit partners and teams for the

Significant Subsidiaries instructed and provided oversight to the work performed in these locations. Collectively, Significant Subsidiaries covered

83% of total assets and 74% of total operating income.

Using the work of others

We have continued our use of evidence provided by others through our reliance on management assurance testing of certain controls across

the group. This included testing of controls performed by management themselves in certain low risk areas including reconciliations and

footnote disclosure controls. We re-performed a portion of the testing to ensure appropriate quality of testing, as well as assessing the

competence and objectivity of those performing the testing.

We also used the work of PwC experts, for example economic experts for our work around the severity and probability weighting of

macroeconomics variables as part of the expected credit loss allowance and actuaries on the estimates used in determining pension liabilities.

An increasing number of controls are operated on behalf of HSBC by third parties. We obtained audit evidence from work that is scoped and

provided by other auditors that are engaged by those third parties. For example, we obtained a report evidencing the testing of external systems

and controls supporting HSBC's payroll and HR processes.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together

with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the

individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the

financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Financial statements – group Financial statements – parent company

Overall materiality

US$1.6bn (2022: US$1bn). US$1.5bn (2022: US$950m).

How we determined it 5% of profit before tax adjusted for notable items (2022:

adjusted profit before tax).

0.75% of total assets. This would result in an overall

materiality of US$2.1bn and was therefore reduced below

the group materiality.

Rationale for benchmark

applied

We believe a standard benchmark of 5% of profit before

tax adjusted for notable items is an appropriate quantitative

indicator of materiality, although certain items could also be

material for qualitative reasons. This benchmark is

consistent with our approach for listed entities.

A benchmark of total assets has been used, as the parent

company‘s primary purpose is to act as a holding parent

company with investments in the group‘s subsidiaries, not

to generate operating profits and therefore a profit based

measure is not relevant.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected

misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature

and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our

performance materiality was 75% (2022: 75%) of overall materiality, amounting to US$1.2bn (2022: US$750m) for the group financial

statements and US$1.1bn (2022: US$712m) for the parent company financial statements.

In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation

risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.

We agreed with the GAC that we would report to them misstatements identified during our audit above US$80m (group audit) (2022: US$50m)

and US$80m (parent company audit) (2022: US$50m) as well as misstatements below those amounts that, in our view, warranted reporting for

qualitative reasons.

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

324 HSBC Holdings plc Annual Report and Accounts 2023

Conclusions relating to going concern

Our evaluation of the directors’ assessment of the group's and the parent company’s ability to continue to adopt the going concern basis of

accounting included:

– performing a risk assessment to identify factors that could impact the going concern basis of accounting, including both internal risks (i.e.

strategy execution) and external risks (i.e. macroeconomic conditions);

– understanding and evaluating the group’s financial forecasts;

– understanding and evaluating the group’s stress testing of liquidity and regulatory capital, including the severity of the stress scenarios that

were used;

– understanding and evaluating credit rating agency ratings and actions; and

– reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or

collectively, may cast significant doubt on the group's and the parent company’s ability to continue as a going concern for a period of at least

twelve months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the

financial statements is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group‘s and the parent

company's ability to continue as a going concern.

In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw

attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the

going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.

The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,

accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the

other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be

materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to

conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on

the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report based on these responsibilities.

With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the UK Companies Act

2006 have been included.

Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as

described below.

Strategic report and Report of the Directors

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Report of the Directors

for the year ended 31 December 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal

requirements.

In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did

not identify any material misstatements in the Strategic report and Report of the Directors.

Directors’ Remuneration

In our opinion, the part of the Directors‘ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act

2006.

Corporate governance statement

The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate

governance statement relating to the parent company’s compliance with the provisions of the UK Corporate Governance Code specified for our

review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting

on other information section of this report.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance

statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to

add or draw attention to in relation to:

– The directors’ confirmation that they have carried out an appropriate assessment of the emerging and principal risks;

– The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an

explanation of how these are being managed or mitigated;

– The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of

accounting in preparing them, and their identification of any material uncertainties to the group’s and parent company’s ability to continue to

do so over a period of at least twelve months from the date of approval of the financial statements;

– The directors’ explanation as to their assessment of the group's and parent company’s prospects, the period this assessment covers and

why the period is appropriate; and

HSBC Holdings plc Annual Report and Accounts 2023 325

Financial statements

– The directors’ statement as to whether they have a reasonable expectation that the parent company will be able to continue in operation and

meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary

qualifications or assumptions.

Our review of the directors’ statement regarding the longer-term viability of the group and parent company was substantially less in scope than

an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is

in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the

financial statements and our knowledge and understanding of the group and parent company and their environment obtained in the course of

the audit.

In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate

governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:

– The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the

information necessary for the members to assess the group’s and parent company's position, performance, business model and strategy;

– The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and

– The section of the Annual Report describing the work of the GAC.

We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the parent company’s compliance

with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the

auditors.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Directors’ responsibility statement, the directors are responsible for the preparation of the financial statements in

accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such

internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,

whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a

going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors

either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but

is not a guarantee that an audit conducted in accordance with ISAs (UK) and ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to

influence the economic decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,

outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of

detecting irregularities, including fraud, is detailed below.

Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related

to breaches of financial crime laws and regulations and regulatory compliance, including regulatory reporting requirements and conduct of

business, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered

those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006 and relevant tax legislation.

We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override

of controls), and determined that the principal risks were related to posting inappropriate journal entries in relation to cost targets, and

management bias in accounting estimates. The group engagement team shared this risk assessment with the component auditors so that they

could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team

and/or component auditors included:

– review of correspondence with and reports from regulators, including the Prudential Regulation Authority (’PRA’) and Financial Conduct

Authority (’FCA’);

– reviewed reporting to the GAC and GRC in respect of compliance and legal matters;

– enquiries of management and review of internal audit reports, insofar as they related to the financial statements;

– obtain legal confirmations from legal advisors relating to material litigation and compliance matters;

– assessment of matters reported on the group‘s whistleblowing programmes and the results of management‘s investigation of such matters,

insofar as they related to the financial statements;

– challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to the

determination of expected credit losses, the impairment assessment of the investment in BoCom, valuation of defined benefit pensions

obligations, the impairment assessment of investment in subsidiaries and valuation of financial instruments;

– obtaining confirmations from third parties to confirm the existence of a sample of transactions and balances; and

– identifying and testing journal entries, including those posted with certain descriptions, posted and approved by the same individual,

backdated journals or posted by infrequent and unexpected users.

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with

laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a

material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment

by, for example, forgery or intentional misrepresentations, or through collusion.

Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.

However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

326 HSBC Holdings plc Annual Report and Accounts 2023

target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a

conclusion about the population from which the sample is selected.

A further description of our responsibilities for the audit of the financial statements in accordance with ISAs (UK) is located on the FRC’s

website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We

also:

– identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and

perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our

opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may

involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

– obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group’s and parent company’s internal controls;

– evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

management;

– conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,

whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and parent company’s

ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s

report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our

conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause

the group to cease to continue as a going concern;

– evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the

consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation; and

– obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group and

parent company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and

performance of the group and parent company audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and

significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding

independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,

and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit

of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our

auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine

that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to

outweigh the public interest benefits of such communication.

Use of this report

This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3

of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any

other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior

consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

– we have not obtained all the information and explanations we require for our audit; or

– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from

branches not visited by us; or

– certain disclosures of directors’ remuneration specified by law are not made; or

– the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the

accounting records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the GAC, we were appointed by the members on 31 March 2015 to audit the financial statements for the

year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is nine years, covering the years

ended 31 December 2015 to 31 December 2023.

HSBC Holdings plc Annual Report and Accounts 2023 327

Financial statements

Other matter

As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the

ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF

Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report has been

prepared using the single electronic format specified in the ESEF RTS.

Scott Berryman (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

21 February 2024

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

328 HSBC Holdings plc Annual Report and Accounts 2023

Financial statements

329 Consolidated income statement

330 Consolidated statement of comprehensive income

331 Consolidated balance sheet

332 Consolidated statement of changes in equity

335 Consolidated statement of cash flows

337 HSBC Holdings income statement

337 HSBC Holdings statement of comprehensive income

338 HSBC Holdings balance sheet

339 HSBC Holdings statement of changes in equity

340

HSBC Holdings statement of cash flows

Consolidated income statement

for the year ended 31 December 2023

2023

2022

2021

Notes*

$m $m $m

Net interest income 35,796 30,377 26,489

– interest income

2,3

100,868 52,826 36,188

– interest expense

(65,072) (22,449) (9,699)

Net fee income

11,845 11,770 13,097

– fee income 15,616 15,124 16,788

– fee expense (3,771) (3,354) (3,691)

Net income from financial instruments held for trading or managed on a fair value basis

16,661 10,278 7,744

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,

measured at fair value through profit or loss

7,887 (13,831) 4,053

Net insurance premium income — — 10,870

Insurance finance (expense)/income

(7,809) 13,799 —

Insurance service result 1,078 809 —

– insurance revenue 2,259 1,977 —

– insurance service expense (1,181) (1,168) —

Gain on acquisition

1,591 — —

(Impairment)/reversal of impairment relating to the sale of our retail banking operations in France

150 (2,316) —

Other operating (expense)/income

(1,141) (266) 1,687

Total operating income 66,058 50,620 63,940

Net insurance claims and benefits paid and movement in liabilities to policyholders — — (14,388)

Net operating income before change in expected credit losses and other credit impairment charges

66,058 50,620 49,552

Change in expected credit losses and other credit impairment charges (3,447) (3,584) 928

Net operating income 62,611 47,036 50,480

Employee compensation and benefits

(18,220) (18,003) (18,742)

General and administrative expenses (10,383) (10,848) (11,592)

Depreciation and impairment of property, plant and equipment and right-of-use assets

(1,640) (2,149) (2,261)

Amortisation and impairment of intangible assets (1,827) (1,701) (1,438)

Goodwill impairment — — (587)

Total operating expenses (32,070) (32,701) (34,620)

Operating profit 30,541 14,335 15,860

Share of profit in associates and joint ventures

2,807 2,723 3,046

Impairment of interest in associate

(3,000) — —

Profit before tax 30,348 17,058 18,906

Tax expense

(5,789) (809) (4,213)

Profit for the year 24,559 16,249 14,693

Attributable to:

– ordinary shareholders of the parent company 22,432 14,346 12,607

– preference shareholders of the parent company — — 7

– other equity holders 1,101 1,213 1,303

– non-controlling interests 1,026 690 776

Profit for the year 24,559 16,249 14,693

Basic earnings per ordinary share

1.15 0.72 0.62

Diluted earnings per ordinary share

1.14 0.72 0.62

* For Notes on the financial statements, see page 341.

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 Interest income includes $88,657m (2022: $45,994m; 2021: $30,916m) of interest recognised on financial assets measured at amortised cost and

$12,134m (2022: $6,293m; 2021: $4,337m) of interest recognised on financial assets measured at fair value through other comprehensive income.

3 Interest income is calculated using the effective interest method and comprises mainly interest recognised on financial assets measured at either

amortised cost or fair value through other comprehensive income.

4 Interest expense includes $62,095m (2022: $20,798m; 2021: $8,227m) of interest on financial instruments, excluding interest on debt instruments

issued by HSBC for funding purposes that are designated under the fair value option to reduce an accounting mismatch and on derivatives managed in

conjunction with those debt instruments included in interest expense.

5 Provisional gain recognised in respect of the acquisition of SVB UK.

6 In the fourth quarter of 2023, an impairment loss of $2.0bn was recognised relating to the sale of our retail banking operations in France. This largely

offset the $2.1bn recognised in the first quarter of 2023 on the reversal of the held for sale classification at that time. In 2023, a total net $0.1bn of

credit was recognised in other operating income, reflecting the net asset value disposed under the final terms of sale. The $0.4bn impairment of

goodwill recognised in the third quarter in 2022 has not been reversed.

7 Other operating (expense)/income includes a loss on net monetary positions of $1,667m (2022: $678m; 2021: $576m) as a result of applying IAS 29

‘Financial Reporting in Hyperinflationary Economies’ and the disposal losses on capitalised Markets Treasury repositioning of $977m in 2023.

8 Net operating income before change in expected credit losses and other credit impairment charges also referred to as revenue.

9 Includes depreciation of the right-of-use assets of $663m (2022: $717m; 2021: $878m).

HSBC Holdings plc Annual Report and Accounts 2023 329

Financial statements

Consolidated statement of comprehensive income

for the year ended 31 December 2023

2023 2022

2021

$m $m $m

Profit for the year 24,559 16,249 14,693

Other comprehensive income/(expense)

Items that will be reclassified subsequently to profit or loss when specific conditions are met:

Debt instruments at fair value through other comprehensive income 2,599 (7,232) (2,139)

– fair value gains/(losses) 2,381 (9,618) (2,270)

– fair value losses/(gains) transferred to the income statement on disposal 905 (18) (464)

– expected credit (recoveries)/losses recognised in the income statement 59 56 (49)

– income taxes (746) 2,348 644

Cash flow hedges 2,953 (3,655) (664)

– fair value gains/(losses) 2,534 (4,207) 595

– fair value (gains)/losses reclassified to the income statement 1,463 (758) (1,514)

– income taxes (1,044) 1,310 255

Share of other comprehensive income/(expense) of associates and joint ventures 47 (367) 103

– share for the year 47 (367) 103

Net finance income/(expenses) from insurance contracts (364) 1,775 —

– before income taxes (491) 2,393 —

– income taxes 127 (618) —

Exchange differences (204) (9,918) (2,393)

Items that will not be reclassified subsequently to profit or loss:

Fair value gains on property revaluation 1 280 —

Remeasurement of defined benefit liability (314) (1,031) (274)

– before income taxes (413) (1,723) (107)

– income taxes 99 692 (167)

Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in

own credit risk

(1,219) 1,922 531

– before income taxes (1,617) 2,573 512

– income taxes 398 (651) 19

Equity instruments designated at fair value through other comprehensive income (120) 107 (446)

– fair value gains/(losses) (120) 107 (443)

– income taxes — — (3)

Effects of hyperinflation 1,604 877 315

Other comprehensive income/(expense) for the year, net of tax 4,983 (17,242) (4,967)

Total comprehensive income/(expense) for the year 29,542 (993) 9,726

Attributable to:

– ordinary shareholders of the parent company 27,397 (2,810) 7,765

– preference shareholders of the parent company — — 7

– other equity holders 1,101 1,213 1,303

– non-controlling interests 1,044 604 651

Total comprehensive income/(expense) for the year 29,542 (993) 9,726

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

Financial statements

330 HSBC Holdings plc Annual Report and Accounts 2023

Consolidated balance sheet

at 31 December 2023

31 Dec 31 Dec 1 Jan

2023 2022 2022

Notes*

$m $m $m

Assets

Cash and balances at central banks 285,868 327,002 403,018

Items in the course of collection from other banks 6,342 7,297 4,136

Hong Kong Government certificates of indebtedness 42,024 43,787 42,578

Trading assets

289,159 218,093 248,842

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss

110,643 100,101 110,795

Derivatives

229,714 284,159 196,882

Loans and advances to banks 112,902 104,475 82,567

Loans and advances to customers 938,535 923,561 1,044,534

Reverse repurchase agreements – non-trading 252,217 253,754 241,648

Financial investments

442,763 364,726 392,005

Assets held for sale

114,134 115,919 3,411

Prepayments, accrued income and other assets

165,255 156,149 136,196

Current tax assets 1,536 1,230 970

Interests in associates and joint ventures

27,344 29,254 29,609

Goodwill and intangible assets

12,487 11,419 11,169

Deferred tax assets

7,754 8,360 5,432

Total assets 3,038,677 2,949,286 2,953,792

Liabilities

Hong Kong currency notes in circulation 42,024 43,787 42,578

Deposits by banks 73,163 66,722 101,152

Customer accounts 1,611,647 1,570,303 1,710,574

Repurchase agreements – non-trading 172,100 127,747 126,670

Items in the course of transmission to other banks 7,295 7,864 5,214

Trading liabilities

73,150 72,353 84,904

Financial liabilities designated at fair value

141,426 127,321 145,503

Derivatives

234,772 285,762 191,064

Debt securities in issue

93,917 78,149 78,557

Liabilities of disposal groups held for sale

108,406 114,597 9,005

Accruals, deferred income and other liabilities

136,606 134,313 115,900

Current tax liabilities 2,777 1,135 699

Insurance contract liabilities

120,851 108,816 119,307

Provisions

1,741 1,958 2,566

Deferred tax liabilities

1,238 972 3,294

Subordinated liabilities

24,954 22,290 20,487

Total liabilities 2,846,067 2,764,089 2,757,474

Equity

Called up share capital

9,631 10,147 10,316

Share premium account

14,738 14,664 14,602

Other equity instruments 17,719 19,746 22,414

Other reserves (8,907) (9,133) 6,447

Retained earnings 152,148 142,409 135,236

Total shareholders’ equity 185,329 177,833 189,015

Non-controlling interests

7,281 7,364 7,303

Total equity 192,610 185,197 196,318

Total liabilities and equity 3,038,677 2,949,286 2,953,792

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data and the IFRS 17 transition impact on the balance sheet at 1 January 2022.

* For Notes on the financial statements, see page 341.

The accompanying notes on pages 341 to 434 and the audited sections in the Risk review on pages 135 to 237 (including ‘Measurement

uncertainty and sensitivity analysis of ECL estimates’ on pages 156 to 168, and ‘Directors’ remuneration report’ on pages 279 to 305 form an

integral part of these financial statements.

These financial statements were approved by the Board of Directors on 21 February 2024 and signed on its behalf by:

Mark E Tucker Georges Elhedery

Group Chairman Group Chief Financial Officer

HSBC Holdings plc Annual Report and Accounts 2023 331

Financial statements

for the year ended 31 December 2023

Other reserves

Called up

capital

and share

premium

Other

equity

instru-

ments

Financial

assets at

FVOCI

reserve

Cash

flow

hedging

reserve

Foreign

exchange

reserve

Merger

and

other

reserves

1,2

Insurance

finance

reserve

Retained

earnings

1,4

Total

share-

holders’

equity

Non-

controlling

interests

Total

equity

$m $m $m $m $m $m $m $m $m $m $m

At 1 Jan 2023 24,811 19,746 (7,038) (3,808) (32,575) 33,209 1,079 142,409 177,833 7,364

185,197

Profit for the year — — — — — — — 23,533 23,533 1,026 24,559

Other comprehensive income

(net of tax)

— — 2,402 3,030 (211) 1 (371) 114 4,965 18 4,983

– debt instruments at fair value

through other

comprehensive income

— — 2,574 — — — — — 2,574 25 2,599

– equity instruments

designated at fair value

through other

comprehensive income

— — (93) — — — — — (93) (27) (120)

– cash flow hedges — — — 2,919 — — — — 2,919 34 2,953

– changes in fair value of

financial liabilities designated

at fair value upon initial

recognition arising from

changes in own credit risk

— — — — — — — (1,220) (1,220) 1 (1,219)

– property revaluation — — — — — 1 — — 1 — 1

– remeasurement of defined

benefit asset/liability

— — — — — — — (317) (317) 3 (314)

– share of other

comprehensive income of

associates and joint ventures

— — — — — — — 47 47 — 47

– effects of hyperinflation — — — — — — — 1,604 1,604 — 1,604

– insurance finance income/

(expense) recognised in

other comprehensive income

— — — — — — (364) — (364) — (364)

– exchange differences — — (79) 111 (211) — (7) — (186) (18) (204)

Total comprehensive income

for the year

— — 2,402 3,030 (211) 1 (371) 23,647 28,498 1,044 29,542

Shares issued under employee

remuneration and shareplans

79 — — — — — — (79) — — —

Capital securities issued

— 1,996 — — — — — — 1,996 — 1,996

Dividends to shareholders — — — — — — — (11,593) (11,593) (603)

(12,196)

Redemption of securities

— (4,023) — — — — — 20 (4,003) — (4,003)

Transfers

— — — — — (5,130) — 5,130 — — —

Cost of share-based payment

arrangements

— — — — — — — 482 482 — 482

Share buy-back

— — — — — — — (7,025) (7,025) — (7,025)

Cancellation of shares (521) — — — — 521 — — — — —

Other movements — — 1,129 (255) (967) — 77 (843) (859) (524) (1,383)

At 31 Dec 2023 24,369 17,719 (3,507) (1,033) (33,753) 28,601 785 152,148 185,329 7,281

192,610

Consolidated statement of changes in equity

Financial statements

332 HSBC Holdings plc Annual Report and Accounts 2023

for the year ended 31 December 2022

Other reserves

Called up

capital and

premium

Other

equity

instru-

ments

Financial

assets at

FVOCI

reserve

Cash

flow

hedging

reserve

Foreign

exchange

reserve

Merger

and

other

reserves

1,2

Insurance

finance

reserve

Retained

earnings

1,4

Total

share-

holders’

equity

Non-

controlling

interests

Total

equity

$m $m $m $m $m $m $m $m $m $m $m

At 31 Dec 2021 (IFRS4) 24,918 22,414 (634) (197) (22,769) 30,060 — 144,458 198,250 8,527

206,777

Impact on transition to IFRS17

— — 683 — — — (696) (9,222) (9,235) (1,224) (10,459)

At 1 Jan 2022 24,918 22,414 49 (197) (22,769) 30,060 (696) 135,236 189,015 7,303

196,318

Profit for the year — — — — — — — 15,559 15,559 690 16,249

Other comprehensive income

(net of tax)

— — (7,089) (3,613) (9,806) 174 1,775 1,403 (17,156) (86) (17,242)

– debt instruments at fair value

through other

comprehensive income

— — (7,181) — — — — — (7,181) (51) (7,232)

– equity instruments

designated at fair value

through other

comprehensive income

— — 92 — — — — — 92 15 107

– cash flow hedges — — — (3,613) — — — — (3,613) (42) (3,655)

– changes in fair value of

financial liabilities designated

at fair value upon initial

recognition arising from

changes in own credit risk

— — — — — — — 1,922 1,922 — 1,922

– property revaluation — — — — — 174 — — 174 106 280

– remeasurement of defined

benefit asset/liability

— — — — — — — (1,029) (1,029) (2) (1,031)

– share of other

comprehensive income of

associates and joint ventures

— — — — — — (367) (367) — (367)

– effects of hyperinflation — — — — — — — 877 877 — 877

– insurance finance income/

(expense) recognised in

other comprehensive income

— — — — — — 1,775 — 1,775 — 1,775

– exchange differences — — — — (9,806) — — — (9,806) (112) (9,918)

Total comprehensive income

for the year

— — (7,089) (3,613) (9,806) 174 1,775 16,962 (1,597) 604 (993)

Shares issued under employee

remuneration and shareplans

67 — — — — — — (67) — — —

Dividends to shareholders — — — — — — — (6,544) (6,544) (426) (6,970)

Redemption of securities — (2,668) — — — — — 402 (2,266) — (2,266)

Transfers — — — — — 2,499 — (2,499) — — —

Cost of share-based payment

arrangements

— — — — — — — 400 400 — 400

Share buy-back — — — — — — — (1,000) (1,000) — (1,000)

Cancellation of shares (174) — — — — 174 — — — — —

Other movements — — 2 2 — 302 — (481) (175) (117) (292)

At 31 Dec 2022 24,811 19,746 (7,038) (3,808) (32,575) 33,209 1,079 142,409 177,833 7,364

185,197

Consolidated statement of changes in equity (continued)

HSBC Holdings plc Annual Report and Accounts 2023 333

Financial statements

for the year ended 31 December 2021

Other reserves

Called up

capital and

premium

Other

equity

instru-

ments

Financial

assets at

FVOCI

reserve

Cash

flow

hedging

reserve

Foreign

exchange

reserve

Merger

and

other

reserves

1,2

Insurance

finance

reserve

Retained

earnings

1,4

Total

share-

holders’

equity

Non-

controlling

interests

Total

equity

$m $m $m $m $m $m $m $m $m $m $m

At 1 Jan 2021 24,624 22,414 1,816 457 (20,375) 26,935 — 140,572 196,443 8,552

204,995

Profit for the year — — — — — — — 13,917 13,917 776 14,693

Other comprehensive income

(net of tax)

— — (2,455) (654) (2,394) — — 661 (4,842) (125) (4,967)

– debt instruments at fair value

through other

comprehensive income

— — (2,105) — — — — — (2,105) (34) (2,139)

– equity instruments

designated at fair value

through other

comprehensive income

— — (350) — — — — — (350) (96) (446)

– cash flow hedges — — — (654) — — — — (654) (10) (664)

– changes in fair value of

financial liabilities designated

at fair value upon initial

recognition arising from

changes in own credit risk

— — — — — — — 531 531 — 531

– remeasurement of defined

benefit asset/liability

— — — — — — — (288) (288) 14 (274)

– share of other

comprehensive income of

associates and joint ventures

— — — — — — — 103 103 — 103

– effects of hyperinflation — — — — — — — 315 315 — 315

– exchange differences — — — — (2,394) — — — (2,394) 1 (2,393)

Total comprehensive income

for the year

— — (2,455) (654) (2,394) — — 14,578 9,075 651 9,726

Shares issued under employee

remuneration and shareplans

354 — — — — — — (336) 18 — 18

Capital securities issued — 2,000 — — — — — (4) 1,996 — 1,996

Dividends to shareholders — — — — — — — (5,790) (5,790) (593) (6,383)

Redemption of securities — (2,000) — — — — — — (2,000) — (2,000)

Transfers — — — — — 3,065 — (3,065) — — —

Cost of share-based payment

arrangements

— — — — — — — 467 467 — 467

Cancellation of shares (60) — — — — 60 — (2,004) (2,004) — (2,004)

Other movements — — 5 — — — — 40 45 (83) (38)

At 31 Dec 2021 24,918 22,414 (634) (197) (22,769) 30,060 — 144,458 198,250 8,527

206,777

Consolidated statement of changes in equity (continued)

1 Cumulative goodwill amounting to $5,138m was charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998, including

$3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m was charged against retained

earnings.

2 Statutory share premium relief under section 131 of the Companies Act 1985 was taken in respect of the acquisition of HSBC Bank plc in 1992,

HSBCContinental Europe in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value only. In HSBC’s

consolidated financial statements, the fair value differences of $8,290m in respect of HSBC Continental Europe and $12,768m in respect of HSBC

Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance Corporation

subsequently became attached to HSBC Overseas Holdings (UK) Limited, following a number of intra-Group reorganisations. During 2009, pursuant to

section 131 of the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and $15,796m was recognised in the

merger reserve.

3 The insurance finance reserve reflects the impact of the adoption of the other comprehensive income option for our insurance business in France.

Underlying assets supporting these contracts are measured at fair value through other comprehensive income. Under this option, only the amount

that matches income or expenses recognised in profit or loss on underlying items is included in finance income or expenses, resulting in the

elimination of income statement accounting mismatches. The remaining amount of finance income or expenses for these insurance contracts is

recognised in other comprehensive income (‘OCI’).

4 At 31 December 2023, retained earnings included 256,289,431 treasury shares (2022: 554,452,437; 2021: 558,397,704). These include treasury

shares held within HSBC’s insurance business’s retirement funds for the benefit of policyholders or beneficiaries within employee trusts for the

settlement of shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Markets and

Securities Services.

5 In March 2023, HSBC Holdings issued $2,000m 8.000% contingent convertible securities on which there were $4m of external issue costs.

6 In March 2023, HSBC Holdings redeemed $2,350m 6.250% contingent convertible securities. In September 2023, HSBC Holdings further redeemed

€1,000m 6.000% and SGD750m 5.000% contingent convertible securities.

7 At 31 December 2023, an impairment of $5,512m of HSBC Overseas Holdings (UK) Limited was recognised, resulting in a permitted transfer of

$5,130m from the merger reserve to retained earnings and a realisation of $382m shared-based payment reserve within retained earnings.

8 In May 2023, HSBC Holdings announced a share buy-back of up to $2.0bn, which was completed in July 2023. In August 2023, HSBC Holdings

announced another share buy-back of up to $2.0bn, which was completed in October 2023. In October 2023, HSBC Holdings further announced a

share buy-back of up to $3.0bn, which was completed in February 2024.

9 The impact of IFRS 17 on previously reported total equity was $(10,831)m at 31 December 2022.

Financial statements

334 HSBC Holdings plc Annual Report and Accounts 2023

Profit before tax 30,348 17,058 18,906

Adjustments for non-cash items:

Depreciation, amortisation and impairment 3,466 3,850 4,286

Net loss/(gain) from investing activities 1,213 11 (647)

Share of profit in associates and joint ventures (2,807) (2,723) (3,046)

Impairment of interest in associate 3,000 — —

(Gain)/loss on acquisition/disposal of subsidiaries, businesses, associates and joint ventures (1,775) 2,554 —

Change in expected credit losses gross of recoveries and other credit impairment charges 3,717 3,898 (519)

Provisions including pensions 266 638 1,063

Share-based payment expense 482 400 467

Other non-cash items included in profit before tax (4,299) (774) 510

Elimination of exchange differences

(10,678) 48,718 18,937

Changes in operating assets and liabilities

Change in net trading securities and derivatives (63,247) 20,166 (9,226)

Change in loans and advances to banks and customers (14,145) 31,649 (11,014)

Change in reverse repurchase agreements – non-trading (2,095) (23,405) 552

Change in financial assets designated and otherwise mandatorily measured at fair value (9,994) 14,164 (4,254)

Change in other assets

(10,254) (12,858) 19,899

Change in deposits by banks and customer accounts 45,021 (91,194) 95,703

Change in repurchase agreements – non-trading 43,366 4,344 14,769

Change in debt securities in issue 11,945 12,518 (16,936)

Change in financial liabilities designated at fair value 10,097 (13,654) (11,425)

Change in other liabilities 8,742 6,021 (10,935)

Dividends received from associates 1,067 944 808

Contributions paid to defined benefit plans (208) (194) (509)

Tax paid (4,117) (2,776) (3,077)

Net cash from operating activities 39,111 19,355 104,312

Purchase of financial investments

(563,561) (511,097) (493,042)

Proceeds from the sale and maturity of financial investments

504,174 492,624 521,190

Net cash flows from the purchase and sale of property, plant and equipment (1,145) (1,284) (1,086)

Net cash flows from disposal of loan portfolio and customer accounts 623 (3,530) 3,059

Net investment in intangible assets (2,550) (3,125) (2,479)

Net cash flow from (acquisition)/disposal of subsidiaries, businesses, associates and joint ventures

(453) (989) (106)

Net cash from investing activities (62,912) (27,401) 27,536

Issue of ordinary share capital and other equity instruments 1,996 — 1,996

Cancellation of shares (5,812) (2,285) (707)

Net sales/(purchases) of own shares for market-making and investment purposes (614) (91) (1,386)

Net cash flow from change in stake of subsidiaries (19) (197) —

Redemption of preference shares and other equity instruments (4,003) (2,266) (3,450)

Subordinated loan capital issued 5,237 7,300 —

Subordinated loan capital repaid

(2,147) (1,777) (864)

Dividends paid to shareholders of the parent company and non-controlling interests (12,196) (6,970) (6,383)

Net cash from financing activities (17,558) (6,286) (10,794)

Net increase/(decrease) in cash and cash equivalents (41,359) (14,332) 121,054

Cash and cash equivalents at 1 Jan 521,671 574,032 468,323

Exchange differences in respect of cash and cash equivalents 10,621 (38,029) (15,345)

Cash and cash equivalents at 31 Dec

490,933 521,671 574,032

Consolidated statement of cash flows

for the year ended 31 December 2023

2023 2022

2021

$m $m $m

HSBC Holdings plc Annual Report and Accounts 2023 335

Financial statements

Cash and cash equivalents comprise:

– cash and balances at central banks 285,868 327,002 403,018

– items in the course of collection from other banks 6,342 7,297 4,136

– loans and advances to banks of one month or less 76,620 72,295 55,705

– reverse repurchase agreements with banks of one month or less 64,341 68,682 76,658

– treasury bills, other bills and certificates of deposit less than three months 33,303 26,727 28,488

– cash collateral and net settlement accounts 15,819 19,445 11,241

– cash and cash equivalents held for sale

15,935 8,087 —

– less: items in the course of transmission to other banks (7,295) (7,864) (5,214)

Cash and cash equivalents at 31 Dec

490,933 521,671 574,032

Consolidated statement of cash flows (continued)

for the year ended 31 December 2023

2023 2022

2021

$m $m $m

Interest received was $98,910m (2022: $55,664m; 2021: $40,175m), interest paid was $65,980m (2022: $22,856m; 2021:$12,695m) and

dividends received (excluding dividends received from associates, which are presented separately above) were $1,869m (2022: $1,638m; 2021:

$1,898m).

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details

cannot be determined without unreasonable expense.

3 Post adoption of IFRS 17 ‘Insurance Contracts’, certain assets have been reclassified from ‘Investing activities’ to ‘Operating activities’. The

comparative data have not been re-presented.

4 The ‘Net cash flow on (acquisition)/disposal of subsidiaries, businesses, associates and joint ventures’ includes $1.2bn of net cash inflows from the

acquisition of Silicon Valley Bank UK Limited in March 2023.

5 Subordinated liabilities changes during the year are attributable to repayments of $(2.1)bn (2022: $(1.8)bn; 2021: $(0.9)bn)of securities. Non-cash

changes during the year included foreign exchange gains/(losses) of $0.6bn (2022: $(1.1)bn; 2021: $(0.3)bn) and fair value gains/(losses) of $0.8bn

(2022: $(3.1)bn; 2021: $(1.0)bn).

6 At 31December 2023, $61.8bn (2022: $59.3bn; 2021: $33.6bn) was not available for use by HSBC due to a range of restrictions, including currency

exchange and other restrictions.

7 Includes $5.6bn (2022: $6.5bn) of cash and balances at central banks, $0.2bn (2022: $1.3bn) of reverse repurchase agreements with banks of one

month or less, $10.5bn (2022: $0.2bn) of loans and advances to banks of one month or less and items in the course of transmission to other banks

$(0.4)bn (2022: $(0.2)bn).

Financial statements

336 HSBC Holdings plc Annual Report and Accounts 2023

HSBC Holdings income statement

for the year ended 31 December 2023

2023 2022 2021

Notes*

$m $m $m

Net interest expense (5,339) (3,074) (2,367)

– interest income 2,864 937 380

– interest expense (8,203) (4,011) (2,747)

Fee (expense)/income 2 (3) (5)

Net income from financial instruments held for trading or managed on a fair value basis

1,063 2,129 110

Changes in fair value of designated debt and related derivatives

(1,468) 2,144 349

Changes in fair value of other financial instruments mandatorily measured at fair value through profit

or loss

3,692 (2,409) (420)

Gains less losses from financial investments 45 58 —

Dividend income from subsidiaries 16,824 9,478 11,404

Other operating income 332 91 230

Total operating income 15,151 8,414 9,301

Employee compensation and benefits

(15) (41) (30)

General and administrative expenses (1,327) (1,586) (1,845)

(Impairment) of subsidiaries/reversal of impairment

(5,574) 2,493 3,065

Total operating expenses (6,916) 866 1,190

Profit before tax 8,235 9,280 10,491

Tax credit

977 3,077 343

Profit for the year 9,212 12,357 10,834

* For Notes on the financial statements, see page 341.

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

2 The tax credit in 2022 includes $2.2bn arising from the recognition of a deferred tax asset from historical tax losses in HSBC Holdings. This was a

result of improved profit forecasts for the UK tax group, which accelerated the expected utilisation of these losses and reduced uncertainty regarding

their recoverability. The amounts recorded within profit before tax with respect to dividend income from subsidiaries and reversal of impairment of

subsidiaries are not subject to tax.

HSBC Holdings statement of comprehensive income

for the year ended 31 December 2023

2023 2022 2021

$m $m $m

Profit for the year 9,212 12,357 10,834

Other comprehensive income/(expense)

Items that will not be reclassified subsequently to profit or loss:

Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes

in own credit risk

(124) 326 267

– before income taxes (166) 435 259

– income taxes 42 (109) 8

Other comprehensive income/(expense) for the year, net of tax (124) 326 267

Total comprehensive income for the year 9,088 12,683 11,101

HSBC Holdings plc Annual Report and Accounts 2023 337

Financial statements

HSBC Holdings balance sheet

31 Dec 2023 31 Dec 2022

Notes*

$m $m

Assets

Cash and balances with HSBC undertakings 7,029 3,210

Financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value 59,879 52,322

Derivatives

3,344 3,801

Loans and advances to HSBC undertakings 27,354 26,765

Financial investments

19,558 19,466

Prepayments, accrued income and other assets 5,341 5,242

Current tax assets 924 464

Investments in subsidiaries

159,478 167,542

Intangible assets 180 189

Deferred tax assets 2,082 2,100

Total assets at 31 Dec 285,169 281,101

Liabilities and equity

Liabilities

Amounts owed to HSBC undertakings 168 314

Financial liabilities designated at fair value

43,638 32,123

Derivatives

6,090 6,922

Debt securities in issue

65,239 66,938

Accruals, deferred income and other liabilities 4,289 1,969

Subordinated liabilities

24,439 19,727

Total liabilities 143,863 127,993

Equity

Called up share capital

9,631 10,147

Share premium account

14,738 14,664

Other equity instruments

17,703 19,746

Merger and other reserves 35,946 40,555

Retained earnings 63,288 67,996

Total equity 141,306 153,108

Total liabilities and equity at 31 Dec 285,169 281,101

* For Notes on the financial statements, see page 341.

The accompanying notes on pages 341 to 434, the audited sections in the Risk review on pages 135 to 237 and ‘Directors’ remuneration report’

on pages 279 to 305 form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 21 February 2024 and signed on its behalf by:

Mark E Tucker Georges Elhedery

Group Chairman Group Chief Financial Officer

Financial statements

338 HSBC Holdings plc Annual Report and Accounts 2023

HSBC Holdings statement of changes in equity

for the year ended 31 December 2023

Other

reserves

Called up

capital

premium

Other

equity

instruments

Retained

earnings

1,2

Merger

and other

reserves

Total

shareholders’

equity

$m $m $m $m $m $m

At 1 Jan 2023 10,147 14,664 19,746 67,996 40,555 153,108

Profit for the year — — — 9,212 — 9,212

Other comprehensive income (net of tax) — — — (124) — (124)

– changes in fair value of financial liabilities designated at fair value due to

movement in own credit risk

— — — (124) — (124)

Total comprehensive income for the year

— — —

9,088 — 9,088

Shares issued under employee share plans 5 74 — (328) — (249)

Capital securities issued

— —

1,980

—

— 1,980

Cancellation of shares

(521) — — (7,025) 521 (7,025)

Dividends to shareholders — — — (11,593) — (11,593)

Redemption of capital securities

—

(4,023) 20 — (4,003)

Transfers

— — — 5,130

(5,130) —

Other movements

— — — —

— —

At 31 Dec 2023 9,631 14,738 17,703 63,288 35,946 141,306

At 1 Jan 2022 10,316 14,602 22,414 65,116 37,882 150,330

Profit for the year — — — 12,357 — 12,357

Other comprehensive income (net of tax) — — — 326 — 326

– changes in fair value of financial liabilities designated at fair value due to

movement in own credit risk

— — — 326 — 326

Total comprehensive income for the year — — — 12,683 — 12,683

Shares issued under employee share plans 5 62 — (161) — (94)

Capital securities issued — — — — — —

Cancellation of shares (174) — — (1,001) 174 (1,001)

Dividends to shareholders — — — (6,544) — (6,544)

Redemption of capital securities — — (2,668) 402 — (2,266)

Transfers

— — — (2,499) 2,499 —

Other movements — — — — — —

At 31 Dec 2022 10,147 14,664 19,746 67,996 40,555 153,108

At 1 Jan 2021 10,347 14,277 22,414 65,005 34,757 146,800

Profit for the year — — — 10,834 — 10,834

Other comprehensive income (net of tax) — — — 267 — 267

– changes in fair value of financial liabilities designated at fair value due to

movement in own credit risk

— — — 267 — 267

Total comprehensive income for the year — — — 11,101 — 11,101

Shares issued under employee share plans 29 325 — (103) — 251

Capital securities issued — — 2,000 (20) — 1,980

Cancellation of shares (60) — — (2,004) 60 (2,004)

Dividends to shareholders — — — (5,790) — (5,790)

Redemption of capital securities — — (2,000) — — (2,000)

Transfers

— — — (3,065) 3,065 —

Other movements — — — (8) — (8)

At 31 Dec 2021 10,316 14,602 22,414 65,116 37,882 150,330

Dividends per ordinary share at 31 December 2023 were $0.53 (2022: $0.27; 2021: $0.22).

1 Retained earnings include unrealised profits from intercompany transactions and share-based payment reserves, which are excluded from distributable

reserves. Distributable reserves include the distributable portions of retained earnings and the merger reserve. Distributable reserves are reduced by

ordinary dividend payments, distributions on additional tier 1 instruments, share buy-backs and impairments in investments in subsidiaries. They are

increased by profits and the realisation of retained earnings or merger reserves upon impairment of an associated investment in subsidiary.

2 At 31 December 2023, retained earnings included 20,018,490 ($100m) treasury shares (2022: 331,874,221 ($2,615m); 2021: 329,871,829 ($2,542m)).

3 In March 2023, HSBC Holdings issued $2,000m 8.000% contingent convertible securities, on which there were $20m of issue costs.

4 In May 2023, HSBC announced a share buy-back of up to $2.0bn, which was completed in July 2023. In August 2023, HSBC announced another share

buy-back of up to $2.0bn, which was completed in October 2023. In October 2023, HSBC further announced a share buy-back of up to $3.0bn, which

was completed in February 2024.

5 In March 2023, HSBC Holdings redeemed $2,350m 6.250% contingent convertible securities. In September 2023, HSBC Holdings further redeemed

€1,000m 6.000% and SGD750m 5.000% contingent convertible securities.

6 At 31 December 2023, an impairment of $5,512m of HSBC Overseas Holdings (UK) Limited was recognised, resulting in a permitted transfer of

$5,130m from the merger reserve to retained earnings, and a realisation of $382m share-based payment reserve within retained earnings. In 2022, a

part-reversal of the impairment resulted in a transfer from retained earnings back to the merger reserve of $2,499m (2021: $3,065m).

HSBC Holdings plc Annual Report and Accounts 2023 339

Financial statements

HSBC Holdings statement of cash flows

for the year ended 31 December 2023

2023

2022 2021

$m $m $m

Profit before tax 8,235 9,280 10,491

Adjustments for non-cash items 5,611 (2,500) (2,954)

– depreciation, amortisation and impairment/expected credit losses 5,629 (2,428) (2,976)

– share-based payment expense — 1 2

– other non-cash items included in profit before tax (38) (73) 20

– elimination of exchange differences

20 — —

Changes in operating assets and liabilities

Change in loans to HSBC undertakings (1,267) (1,657) 3,364

Change in financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value (7,767) (914) (4,409)

Change in net trading securities and net derivatives (529) 4,712 47

Change in other assets 363 51 (226)

Change in financial investments — 196 20

Change in debt securities in issue 1,964 (5,625) (2,833)

Change in financial liabilities designated at fair value 3,096 (4,755) (1,396)

Change in other liabilities 1,947 (3,394) (691)

Tax received 577 215 32

Net cash from operating activities 12,230 (4,391) 1,445

Purchase of financial investments (7,803) (21,481) (16,966)

Proceeds from the sale and maturity of financial investments 20,074 17,165 16,074

Net cash flow from capital contribution, acquisition and disposal of subsidiaries 2,476 (1,836) 663

Net investment in intangible assets (46) (39) (26)

Net cash from investing activities 14,701 (6,191) (255)

Issue of ordinary share capital and other equity instruments 2,059 67 2,334

Redemption of preference shares and other equity instruments (4,003) (2,266) (3,450)

Purchase of treasury shares (855) (438) (28)

Cancellation of shares (5,812) (2,298) (707)

Subordinated loan capital issued 5,270 7,300 —

Subordinated loan capital repaid — — —

Debt securities issued 17,180 18,076 19,379

Debt securities repaid (13,047) (10,094) (5,569)

Dividends paid on ordinary shares (10,492) (5,330) (4,480)

Dividends paid to holders of other equity instruments (1,101) (1,214) (1,310)

Net cash from financing activities (10,801) 3,803 6,169

Net increase/(decrease) in cash and cash equivalents 16,130 (6,779) 7,359

Cash and cash equivalents at 1 January 6,756 13,535 6,176

Exchange differences in respect of cash and cash equivalents

(72) — —

Cash and cash equivalents at 31 Dec 22,814 6,756 13,535

Cash and cash equivalents comprise:

– cash at bank with HSBC undertakings 7,029 3,210 2,590

– cash collateral and net settlement accounts 3,422 3,544 93

– treasury and other eligible bills 12,363 2 10,852

Interest received was $5,695m (2022: $2,410m; 2021: $1,636m), interest paid was $7,754m (2022: $3,813m; 2021: $2,724m) and dividends

received were $16,824m (2022: $9,478m; 2021:$11,404m).

1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details

cannot be determined without unreasonable expense. As this change has immaterial impact, prior period comparatives have not been restated.

2 In 2023, additional disclosure has been made in respect of exchange differences on cash and cash equivalents. As this change has immaterial impact,

prior period comparatives have not been restated.

Financial statements

340 HSBC Holdings plc Annual Report and Accounts 2023

Notes on the financial statements

Contents

341 1 Basis of preparation and material accounting policies

355 2 Net fee income

356 3 Net income/(expense) from financial instruments

measured at fair value through profit or loss

356 4 Insurance business

363 5 Employee compensation and benefits

368 6 Auditor’s remuneration

368 7 Tax

371 8 Dividends

372 9 Earnings per share

372 10 Segmental analysis

375 11 Trading assets

375 12 Fair values of financial instruments carried at fairvalue

382 13 Fair values of financial instruments not carried at fair value

383 14 Financial assets designated and otherwise mandatorily

measured at fair value through profit or loss

384 15 Derivatives

389 16 Financial investments

390 17 Assets pledged, collateral received and assets

transferred

391 18 Interests in associates and joint ventures

395 19 Investments in subsidiaries

397 20 Structured entities

399 21 Goodwill and intangible assets

401 22 Prepayments, accrued income and other assets

401 23 Assets held for sale, liabilities of disposal groups held for

sale and business acquisitions

404 24 Trading liabilities

404 25 Financial liabilities designated at fair value

404 26 Debt securities in issue

405 27 Accruals, deferred income and other liabilities

405 28 Provisions

406 29 Subordinated liabilities

407 30 Maturity analysis of assets, liabilities and off-balance

sheet commitments

412 31 Offsetting of financial assets and financial liabilities

414 32 Interest rate benchmark reform

414 33 Called up share capital and other equity instruments

416 34 Contingent liabilities, contractual commitments and

guarantees

416 35 Finance lease receivables

417 36 Legal proceedings and regulatory matters

420 37 Related party transactions

422 38 Effects of adoption of IFRS 17

426 39 Events after the balance sheet date

426 40 HSBC Holdings’ subsidiaries, joint ventures and

associates

Basis of preparation and material accounting policies

1.1 Basis of preparation

(a) Compliance with International Financial Reporting Standards

The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings comply with UK-adopted international

accounting standards and with the requirements of the Companies Act 2006, and have also applied international financial reporting standards

adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These financial statements are also prepared in

accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IFRS Accounting

Standards’), including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRS Accounting

Standards for the periods presented. There were no unendorsed standards effective for the year ended 31December2023 affecting these

consolidated and separate financial statements.

Standards adopted during the year ended 31 December 2023

IFRS 17 ‘Insurance Contracts’

On 1 January 2023, the Group adopted the requirements of IFRS 17 ‘Insurance Contracts’ retrospectively with comparatives restated from the

transition date, 1 January 2022. At transition, the Group’s total equity reduced by $10,459m.

On adoption of IFRS 17, balances based on IFRS 4, including the present value of in-force long-term insurance business (‘PVIF’) asset in relation

to the upfront recognition of future profits of in-force insurance contracts, were derecognised. Insurance contract liabilities have been

remeasured under IFRS17 based on groups of insurance contracts, which include the fulfilment cash flows comprising the best estimate of the

present value of the future cash flows (for example premiums and payouts for claims, benefits and expenses), together with a risk adjustment

for non-financial risk, as well as the contractual service margin (‘CSM’). The CSM represents the unearned profits that will be released and

systematically recognised in insurance revenue as services are provided over the expected coverage period.

In addition, the Group has made use of the option under the standard to re-designate certain eligible financial assets held to support insurance

contract liabilities, which were predominantly measured at amortised cost, as financial assets measured at fair value through profit or loss, with

comparatives restated from the transition date. The effects of adoption of IFRS 17 are set out in Note 38 with a description of the policy in Note

1.2(j).

The key differences between IFRS 4 and IFRS 17 are summarised in the following table:

HSBC Holdings plc Annual Report and Accounts 2023 341

Financial statements

Balance sheet – Insurance contract liabilities for non-linked life insurance

contracts are calculated by local actuarial principles.

Liabilities under unit-linked life insurance contracts are at

least equivalent to the surrender or transfer value, by

reference to the value of the relevant underlying funds or

indices. Grouping requirements follow local regulations.

– An intangible asset for the PVIF is recognised,

representing the upfront recognition of future profits

associated with in-force insurance contracts.

– Insurance contract liabilities are measured for groups of

insurance contracts at current value, comprising the fulfilment

cash flows and the CSM.

– The fulfilment cash flows comprise the best estimate of the

present value of the future cash flows, together with a risk

adjustment for non-financial risk.

– The CSM represents the unearned profit.

Profit emergence/

recognition

– The value of new business is reported as revenue on

Day1 as an increase in PVIF.

– The impact of the majority of assumption changes is

recognised immediately in the income statement.

– Variances between actual and expected cash flows are

recognised in the period they arise.

– The CSM is systematically recognised in revenue as services

are provided over the expected coverage period of the group of

contracts (i.e. no Day 1 profit).

– Contracts are measured using the general measurement model

(‘GMM’) or the variable fee approach (‘VFA’) model for

insurance contracts with direct participation features upon

meeting the eligibility criteria. Under the VFA model, the

Group’s share of the investment experience and assumption

changes are absorbed by the CSM and released over time to

profit or loss. For contracts measured under GMM, the Group’s

share of the investment volatility is recorded in profit or loss as

it arises.

– Losses from onerous contracts are recognised in the income

statement immediately.

Investment return

assumptions (discount

rate)

– PVIF is calculated based on long-term investment return

assumptions based on assets held. It therefore includes

investment margins expected to be earned in future.

– Under the market consistent approach, expected future

investment spreads are not included in the investment return

assumption. Instead, the discount rate includes an illiquidity

premium that reflects the nature of the associated insurance

contract liabilities.

Expenses – Total expenses to acquire and maintain the contract over

its lifetime are included in the PVIF calculation.

– Expenses are recognised across operating expenses and

fee expense as incurred and the allowances for those

expenses are released from the PVIF simultaneously.

– Projected lifetime expenses that are directly attributable costs

are included in the insurance contract liabilities and recognised

in the insurance service result.

– Non-attributable costs are reported in operating expenses.

IFRS 4 IFRS 17

Transition

In applying IFRS 17 for insurance contracts retrospectively, the full retrospective approach (‘FRA’) has been used unless it was impracticable.

When the FRA is impracticable such as when there is a lack of sufficient and reliable data, an entity has an accounting policy choice to use

either the modified retrospective approach (‘MRA’) or the fair value approach (‘FVA’). The Group has applied the FRA for new business from

2018 at the earliest, subject to practicability, and the FVA for the majority of contracts for which the FRA is impracticable.

Under the FVA, the valuation of insurance liabilities on transition is based on the applicable requirements of IFRS 13 ‘Fair Value Measurement’.

This requires consideration of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date (an exit price). The CSM is calculated as the difference between what a market participant would

demand for assuming the unexpired risk associated with insurance contracts, including required profit, and the fulfilment cash flows that are

determined using IFRS 17 principles.

In determining the fair value, the Group considered the estimated profit margin that a market participant would demand in return for assuming

the insurance liabilities with the consideration of the level of capital that a market participant would be required to hold, and the discount rate

with an allowance for an illiquidity premium that takes into account the level of ‘matching’ between the Group’s assets and related liabilities.

These assumptions were set taking into account the assumptions that a hypothetical market participant operating in each local jurisdiction

would consider.

Amendments to IAS 12 ‘International Tax Reform – Pillar Two Model Rules’

On 23 May 2023, the International Accounting Standards Board (‘IASB’) issued amendments to IAS 12 ‘International Tax Reform – Pillar Two

Model Rules’, which became effective immediately and were approved for adoption by all members of the UK Endorsement Board on 19 July

2023 and by the European Union on 8 November 2023. On 20 June 2023, legislation was substantively enacted in the UK to introduce the

OECD’s Pillar Two global minimum tax rules and a UK qualified domestic minimum top-up tax, with effect from 1 January 2024. The Group has

applied the IAS 12 exception from recognising and disclosing information on associated deferred tax assets and liabilities.

There were no other new standards or amendments to standards that had an effect on these financial statements.

(b) Differences between IFRS Accounting Standards and Hong Kong Financial Reporting Standards

There are no significant differences between IFRS Accounting Standards and Hong Kong Financial Reporting Standards in terms of their

application to HSBC, and consequently there would be no significant differences had the financial statements been prepared in accordance with

Hong Kong Financial Reporting Standards. The ‘Notes on the financial statements’, taken together with the ‘Report of the Directors’, include the

aggregate of all disclosures necessary to satisfy IFRS Accounting Standards and Hong Kong Financial Reporting Standards.

Minor amendments to IFRS Accounting Standards

The IASB has published a number of minor amendments to IFRS Accounting Standards that are effective from 1 January 2024. HSBC expects

they will have an insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of

HSBC Holdings. Additionally, in August 2023, the IASB published amendments to IAS 21 ‘Lack of Exchangeability’ effective from 1 January

2025. The Group is undertaking an assessment of the potential impact, which is not expected to be significant.

Notes on the financial statements

342 HSBC Holdings plc Annual Report and Accounts 2023

(d) Foreign currencies

HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major currency

bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency because the US dollar and

currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its subsidiaries, as

well as representing a significant proportion of its funds generated from financing activities.

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Assets and liabilities denominated in

foreign currencies are translated at the rate of exchange at the balance sheet date, except non-monetary assets andliabilities measured at

historical cost, which are translated using the rate of exchange at the initial transaction date. Exchange differences are included in other

comprehensive income or in the income statement depending on where the gain or loss on the underlying item is recognised. Except for

subsidiaries operating in hyperinflationary economies (see Note 1.2(p)), in the consolidated financial statements, the assets and liabilities of

branches, subsidiaries, joint ventures and associates whose functional currency is not US dollars are translated into the Group’s presentation

currency at the rate of exchange at the balance sheet date, while their results are translated into US dollars at the average rates of exchange for

the reporting period. Exchange differences arising are recognised in other comprehensive income. On disposal of a foreign operation, exchange

differences previously recognised in other comprehensive income are reclassified to the income statement.

(e) Presentation of information

Certain disclosures required by IFRS Accounting Standards have been included in the sections marked as (‘Audited’) in the Annual Report and

Accounts 2023 as follows:

– Disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the ‘Risk

review’ on pages 135 to 237.

– The ‘Own funds disclosure’ is included in the ‘Risk review’ on page 207.

HSBC follows the UK Finance Disclosure Code. The UK Finance Disclosure Code aims to increase the quality and comparability of UK banks’

disclosures and sets out five disclosure principles together with supporting guidance agreed in 2010. In line with the principles of the UK

Finance Disclosure Code, HSBC assesses good practice recommendations issued from time to time by relevant regulators and standard setters,

and will assess the applicability and relevance of such guidance, enhancing disclosures where appropriate.

(f) Critical estimates and judgements

The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent

uncertainties and the high level of subjectivity involved in the recognition or measurement of items, highlighted as the ‘critical estimates and

judgements’ in section 1.2 below, it is possible that the outcomes in the next financial year could differ from those on which management’s

estimates are based. This could result in materially different estimates and judgements from those reached by management for the purposes of

these financial statements. Management’s selection of HSBC’s accounting policies that contain critical estimates and judgements reflects the

materiality of the items to which the policies are applied and the high degree of judgement and estimation uncertainty involved.

Management has considered the impact of climate-related risks on HSBC’s financial position and performance. While the effects of climate

change are a source of uncertainty, as at 31 December 2023 management did not consider there to be a material impact on our critical

judgements and estimates from the physical, transition and other climate-related risks in the short to medium term. In particular management

has considered the known and observable potential impacts of climate-related risks of associated judgements and estimates in our value in use

calculations.

(g) Going concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the

resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of

information relating to present and future conditions, including future projections of profitability, liquidity, capital requirements and capital

resources.

These considerations include stressed scenarios that reflect the uncertainty in the macroeconomic environment following rising inflation, slower

Chinese economic activity, and disrupted supply chains as a result of the ongoing Russia-Ukraine and Israel-Hamas wars. They also included

other top and emerging risks, including climate change, as well as the related impacts on profitability, capital and liquidity.

1.2 Summary of material accounting policies

(a) Consolidation and related policies

Investments in subsidiaries

Where an entity is governed by voting rights, HSBC consolidates when it holds – directly or indirectly – the necessary voting rights to pass

resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors,

including having exposure to variability of returns, power to direct relevant activities, and whether power is held as agent or principal.

Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either atfair value or

at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This election is made foreach business

combination.

HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses.

Impairment testing is performed where there is an indication of impairment, by comparing the recoverable amount of the relevant investment to

its carrying amount. Indicators of impairment include both external and internal sources of information. Similarly, assessments are made as to

whether an impairment loss recognised in prior periods may no longer exist or may have decreased. Where this is the case, such an impairment

loss is reversed if there has been a change in the estimate used to determine the relevant recoverable amount since the last impairment loss

was recognised, and to the extent that it does not increase the carrying amount above that had no impairment loss been previously recognised.

HSBC Holdings plc Annual Report and Accounts 2023 343

Financial statements

Critical estimates and judgements

Investments in subsidiaries are tested for impairment when there is an indication that the investment may be impaired, which involves estimations of

value in use reflecting management’s best estimate of the future cash flows of the investment and the rates used to discount these cash flows, both of

which are subject to uncertain factors as follows:

Judgements Estimates

– The accuracy of forecast cash flows is subject to a

high degree of uncertainty in volatile market

conditions. Where such circumstances are

determined to exist, management re-tests for

impairment or reversal more frequently than once a

year when indicators exist. This ensures that the

assumptions on which the cash flow forecasts are

based continue to reflect current market conditions

and management’s best estimate of future

business prospects.

– The future cash flows of each investment are sensitive to the cash flows projected for the

periods for which detailed forecasts are available and to assumptions regarding the long-term

pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance

and verifiable economic data, but they reflect management’s view of future business

prospects at the time of the assessment.

– The rates used to discount future expected cash flows can have a significant effect on their

valuation, and are based on the costs of equity assigned to the investment. The cost of equity

percentage is generally derived from a capital asset pricing model and the market implied cost

of equity, which incorporates inputs reflecting a number of financial and economic variables,

including the risk-free interest rate in the country concerned and a premium for the risk of the

business being evaluated. These variables are subject to fluctuations in external market rates

and economic conditions beyond management’s control.

– Key assumptions used in estimating impairment in subsidiaries and their reversal where

relevant are described in Note 19.

Goodwill

Goodwill is allocated to cash-generating units (’CGUs’) for the purpose of impairment testing, which is undertaken at the lowest level at which

goodwill is monitored for internal management purposes. HSBC’s CGUs are based on its main legal entities subdivided by global business,

except for Global Banking and Markets, for which goodwill is monitored on a global basis.

Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by comparing the recoverable amount of

a CGU with its carrying amount.

Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a

CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and the

portion of the CGU retained.

Critical estimates and judgements

The review of goodwill and non-financial assets (see Note 1.2(n)) for impairment reflects management’s best estimate of the future cash flows of the

CGUs and the rates used to discount these cash flows, both of which are subject to uncertain factors as follows:

Judgements

Estimates

– The accuracy of forecast cash flows is subject to

a high degree of uncertainty in volatile market

conditions. Where such circumstances are

determined to exist, management re-tests

goodwill for impairment more frequently than

once a year when indicators of impairment exist.

This ensures that the assumptions on which the

cash flow forecasts are based continue to reflect

current market conditions and management’s

best estimate of future business prospects.

– The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for

which detailed forecasts are available and to assumptions regarding the long-term pattern of

sustainable cash flows thereafter. Forecasts are compared with actual performance and

verifiable economic data, but they reflect management’s view of future business prospects at

the time of the assessment.

– The rates used to discount future expected cash flows can have a significant effect on their

valuation, and are based on the costs of equity assigned to individual CGUs. The cost of equity

percentage is generally derived from a capital asset pricing model and market implied cost of

equity, which incorporates inputs reflecting a number of financial and economic variables,

including the risk-free interest rate in the country concerned and a premium for the risk of the

business being evaluated. These variables are subject to fluctuations in external market rates

and economic conditions beyond management’s control.

– Key assumptions used in estimating goodwill and non-financial asset impairment are described

in Note 21.

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of goodwill in the next financial year,

but does consider this to be an area that is inherently judgemental.

HSBC sponsored structured entities

HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that entity or

in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally not considered a

sponsor if the only involvement with the entity is merely administrative.

Interests in associates and joint arrangements

Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC’s rights and

obligations, the joint arrangement is classified as either a joint operation or a joint venture.

HSBC classifies investments inentities over which it has significant influence, and which are neither subsidiaries nor joint arrangements, as

associates.

HSBC recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint ventures are

recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates is included in the

consolidated financial statements of HSBC based on either financial statements made up to 31 December or pro-rated amounts adjusted for any

material transactions or events occurring between the date the financial statements are available and 31 December.

Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication that the

investment may be impaired, by comparing the recoverable amount of the relevant investment to its carrying amount. Goodwill on acquisitions

of interests in joint ventures and associates is not tested separately for impairment, but is assessed as part of the carrying amount of the

investment. Previously recognised impairments are assessed for reversal when there are indicators that they may no longer exist or have

Notes on the financial statements

344 HSBC Holdings plc Annual Report and Accounts 2023

decreased. Any reversal, which may arise only from changes in estimates used to determine the prior impairment loss, is recognised to the

extent that it does not increase the carrying amount above that had no impairment loss been previously recognised.

Critical estimates and judgements

The most significant critical estimates relate to the assessment of impairment of our investment in Bank of Communications Co., Limited (‘BoCom’),

which involves estimations of value in use:

Judgements Estimates

– The value in use calculation uses discounted cash flow projections based on

management’s best estimate of future earnings available to ordinary shareholders

prepared in accordance with IAS 36 ‘Impairment of Assets’.

– Key assumptions used in estimating BoCom’s value in use and the sensitivity of

the value in use calculations to different assumptions are described in Note 18.

(b) Income and expense

Operating income

Interest income and expense

Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value, are

recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. However, as an exception

to this, interest on debt instruments issued by HSBC for funding purposes that are designated under the fair value option to reduce an

accounting mismatch and on derivatives managed in conjunction with those debt instruments is included in interest expense.

Interest on credit-impaired financial assets is recognised by applying the effective interest rate to the amortised cost (i.e. gross carrying amount

of the asset less allowance for expected credit losses).

Non-interest income and expense

HSBC generates fee income from services provided at a fixed price over time, such as account service and card fees, or when HSBC delivers a

specific transaction at a point in time, such as broking services and import/export services. With the exception of certain fund management and

performance fees, all other fees are generated at a fixed price. Fund management and performance fees can be variable depending on the size

of the customer portfolio and HSBC’s performance as fund manager. Variable fees are recognised when all uncertainties are resolved. Fee

income is generally earned from short-term contracts with payment terms that do not include a significant financing component.

HSBC acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades, HSBC

acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.

HSBC recognises fees earned on transaction-based arrangements at a point in time when it has fully provided the service to the customer.

Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the agreement.

Where HSBC offers a package of services that contains multiple non-distinct performance obligations, such as those included in account service

packages, the promised services are treated as a single performance obligation. If a package of services contains distinct performance

obligations, the corresponding transaction price is allocated to each performance obligation based on the estimated stand-alone selling prices.

Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and

usually the date when shareholders approve the dividend for unlisted equity securities.

Net income/(expense) from financial instruments measured at fair value through profit or loss includes the following:

– ‘Net income from financial instruments held for trading or managed on a fair value basis’: This comprises net trading income, which includes

all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and other financial instruments

managed on a fair value basis, together with the related interest income, expense and dividends, excluding the effect of changes in the

credit risk of liabilities managed on a fair value basis. It also includes all gains and losses from changes in the fair value of derivatives that are

managed in conjunction with financial assets and liabilities measured at fair value through profit or loss.

– ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit

or loss’: This includes all gains and losses from changes in the fair value, together with related interest income, expense and dividends in

respect of financial assets and liabilities measured at fair value through profit or loss, and those derivatives managed in conjunction with the

above that can be separately identifiable from other trading derivatives.

– ‘Changes in fair value of designated debt instruments and related derivatives’: Interest paid on debt instruments and interest cash flows on

related derivatives is presented in interest expense where doing so reduces an accounting mismatch.

– ‘Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss’: This includes interest on

instruments that fail the solely payments of principal and interest test, see (d) below.

The accounting policies for insurance service result and insurance finance income/(expenses) are disclosed in Note 1.2(j).

All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid totransfer a

liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial

recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference

between the transaction price and the fair value of financial instruments whose fair value is based ona quoted price in an active market or a

valuation technique that uses only data from observable markets, HSBC recognises the difference as a trading gain or loss at inception (a ‘day 1

gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the transaction

until the transaction matures, is closed out, the valuation inputs become observable or HSBC enters into an offsetting transaction. The fair value

of financial instruments is generally measured on an individual basis. However, in cases where HSBC manages a group of financial assets and

liabilities according to its net market or credit risk exposure, the fair value of the group of financial instruments is measured on a net basis but

the underlying financial assets and liabilities are presented separately in the financial statements, unless they satisfy the IFRS offsetting criteria.

HSBC Holdings plc Annual Report and Accounts 2023 345

Financial statements

Critical estimates and judgements

The majority of valuation techniques employ only observable market data. However, certain financial instruments are classified on the basis of valuation

techniques that feature one or more significant market inputs that are unobservable, and for them, the measurement of fair value is more judgemental:

Judgements Estimates

– An instrument in its entirety is classified as valued using significant unobservable

inputs if, in the opinion of management, greater than 5% of the instrument’s

valuation is driven by unobservable inputs.

– ‘Unobservable’ in this context means that there is little or no current market data

available from which to determine the price at which an arm’s length transaction

would be likely to occur. It generally does not mean that there is no data available

at all upon which to base a determination of fair value (consensus pricing data

may, for example, be used).

– Details on the Group’s Level 3 financial instruments and the

sensitivity of their valuation to the effect of applying reasonably

possible alternative assumptions in determining their fair value

are set out in Note 12.

(d) Financial instruments measured at amortised cost

Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates to cash

flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets include most loans and advances

to banks and customers and some debt securities. In addition, most financial liabilities are measured at amortised cost. HSBC accounts for

regular way amortised cost financial instruments using trade date accounting. The carrying amount of these financial assets at initial recognition

includes any directly attributable transactions costs.

HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending

commitment is expected to be sold shortly after origination, the commitment to lend is recorded as a derivative. When HSBC intends tohold

the loan, the loan commitment is included in the impairment calculations set out below.

Non-trading reverse repurchase, repurchase and similar agreements

When debt securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the balance

sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell (‘reverse repos’) are

not recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and reverse repos

are measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale price is treated as

interest and recognised in net interest income over the life of the agreement.

Contracts that are economically equivalent to reverse repo or repo agreements (such as sales or purchases of debt securities entered into

together with total return swaps with the same counterparty) are accounted for similarly to, and presented together with, reverse repo or repo

agreements.

(e) Financial assets measured at fair value through other comprehensive income

Financial assets managed within a business model that is achieved by both collecting contractual cash flows and selling and which contain

contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at fair value

through other comprehensive income (‘FVOCI’). These comprise primarily debt securities. They are recognised on trade date when HSBC enters

into contractual arrangements to purchase and are generally derecognised when they are either sold or redeemed. They are subsequently

remeasured at fair value with changes therein (except for those relating to impairment, interest income and foreign currency exchange gains

and losses) recognised in other comprehensive income until the assets are sold. Upon disposal, the cumulative gains or losses in other

comprehensive income are recognised in the income statement as ‘Gains less losses from financial instruments’. Financial assets measured at

FVOCI are included in the impairment calculations set out below and impairment is recognised in profit or loss.

(f) Equity securities measured at fair value with fair value movements presented in other comprehensive income

The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other similar

investments where HSBC holds the investments other than to generate a capital return. Dividends from such investments are recognised in

profit or loss. Gains or losses on the derecognition of these equity securities are not transferred to profit or loss. Otherwise, equity securities are

measured at fair value through profit or loss.

(g) Financial instruments designated at fair value through profit or loss

Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out below and

are so designated irrevocably at inception:

– The use of the designation removes or significantly reduces an accounting mismatch.

– A group of financial assets and liabilities or a group of financial liabilities is managed and its performance is evaluated on a fair value basis, in

accordance with a documented risk management or investment strategy.

– The financial liability contains one or more non-closely related embedded derivatives.

Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and are

normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised when HSBC

enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when extinguished. Subsequent

changes in fair values are recognised in the income statement in ‘Net income from financial instruments held for trading or managed on a fair

value basis’ or ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value

through profit or loss’ or ‘Changes in fair value of designated debt and related derivatives’ except for the effect of changes in the liabilities’ credit

risk, which is presented in ‘Other comprehensive income’, unless that treatment would create or enlarge an accounting mismatch in profit or

loss.

Under the above criteria, the main classes of financial instruments designated by HSBC are:

– Debt instruments for funding purposes that are designated to reduce an accounting mismatch: The interest and/or foreign exchange

exposure on certain fixed-rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain swaps

as part of a documented risk management strategy.

Notes on the financial statements

346 HSBC Holdings plc Annual Report and Accounts 2023

– Financial assets and financial liabilities under unit-linked and non-linked investment contracts: A contract under which HSBC does not accept

significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with discretionary

participation features (‘DPF’), but is accounted for as a financial liability. Customer liabilities under linked and certain non-linked investment

contracts issued by insurance subsidiaries are determined based on the fair value of the assets held in the linked funds or by a valuation

method. The related financial assets and liabilities are managed and reported to management on a fair value basis. Designation at fair value

of the financial assets and related liabilities allows changes in fair values to be recorded in the income statement and presented in the same

line.

– Financial liabilities that contain both deposit and derivative components: These financial liabilities are managed and their performance

evaluated on a fair value basis.

(h) Derivatives

Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other indices.

Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified as assets when

their fair value is positive or as liabilities when their fair value is negative. This includes embedded derivatives in financial liabilities, which are

bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.

Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value where doing so reduces an accounting

mismatch, the contractual interest is shown in ‘Interest expense’ together with the interest payable on the issued debt.

Hedge accounting

When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge

accounting relationships where the required criteria for documentation and hedge effectiveness are met. HSBC uses these derivatives or,

where allowed, other non-derivative hedging instruments in fair value hedges, cash flow hedges or hedges of net investments in foreign

operations as appropriate to the risk being hedged.

Fair value hedge

Fair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but results in

recognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk that would not otherwise be recognised in

the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued and the

cumulative adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortised to the income

statement on a recalculated effective interest rate, unless the hedged item has been derecognised, in which case it is recognised in the income

statement immediately.

Cash flow hedge

The effective portion of gains and losses on hedging instruments is recognised in other comprehensive income and the ineffective portion of

the change in fair value of derivative hedging instruments that are part of a cash flow hedge relationship is recognised immediately in the

income statement within ‘Net income from financial instruments held for trading or managed on a fair value basis’. The accumulated gains and

losses recognised in other comprehensive income are reclassified to the income statement in the same periods in which the hedged item

affects profit or loss. When a hedge relationship is discontinued, or partially discontinued, any cumulative gain or loss recognised in other

comprehensive income remains in equity until the forecast transaction is recognised in the income statement. When a forecast transaction is no

longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is immediately reclassified to the

income statement.

Net investment hedge

Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. The effective portion of gains and

losses on the hedging instrument is recognised in other comprehensive income and other gains and losses are recognised immediately in the

income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on the

disposal, or part-disposal, of the foreign operation.

Derivatives that do not qualify for hedge accounting

Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.

(i) Impairment of amortised cost and FVOCI financial assets

Expected credit losses (‘ECL’) are recognised for loans and advances to banks and customers, non-trading reverse repurchase agreements,

other financial assets held at amortised cost, debt instruments measured at FVOCI, and certain loan commitments and financial guarantee

contracts. At initial recognition, an allowance (or provision in the case of some loan commitments and financial guarantees) is recognised for

ECL resulting from possible default events within the next 12 months, or less, where the remaining life is less than 12 months (’12-month

ECL’). In the event of a significant increase in credit risk, an allowance (or provision) is recognised for ECL resulting from all possible default

events over the expected life of the financial instrument (‘lifetime ECL’). Financial assets where 12-month ECL is recognised are considered to

be ‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk are in ‘stage 2’; and financial assets

for which there is objective evidence of impairment, and so are considered to be in default or otherwise credit impaired are in ‘stage 3’.

Purchased or originated credit-impaired financial assets (‘POCI’) are treated differently as set out below.

Credit impaired (stage 3)

HSBC determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily whether

contractual payments of either principal or interest are past due for more than 90 days, there are other indications that the borrower is unlikely

to pay such as that a concession has been granted to the borrower for economic or legal reasons relating to the borrower’s financial condition,

or the loan is otherwise considered to be in default.

If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due. Therefore, the

definitions of credit impaired and default are aligned as far as possible so that stage 3 represents all loans that are considered defaulted or

otherwise credit impaired.

Interest income is recognised by applying the effective interest rate to the amortised cost (i.e. gross carrying amount less allowance for ECL).

HSBC Holdings plc Annual Report and Accounts 2023 347

Financial statements

Write-off

Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of

recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the

net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.

Forbearance

Loans are identified as forborne and classified as either performing or non-performing when HSBC modifies the contractual terms due to

financial difficulty of the borrower. Non-performing forborne loans are stage 3 and classified as non-performing until they meet the curing

criteria, as specified by applicable credit risk policy (for example, when the loan is no longer in default and no other indicators of default have

been present for at least 12 months). Any amount written off as a result of any modification of contractual terms upon entering forbearance

would not be reversed.

The Group applies the EBA Guidelines on the application of definition of default for our retail portfolios, which affect credit risk policies and our

reporting in respect of the status of loans as credit impaired principally due to forbearance (or curing thereof). Further details are provided under

‘Forborne loans and advances’ on page 148.

Performing forborne loans are initially stage 2 and remain classified as forborne until they meet applicable curing criteria (for example, they

continue to not be in default and no other indicators of default are present for a period of at least 24 months). At this point, the loan is either

stage 1 or stage 2 as determined by comparing the risk of a default occurring at the reporting date (based on the modified contractual terms)

and the risk of a default occurring at initial recognition (based on the original, unmodified contractual terms).

A forborne loan is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the

terms of an existing agreement are modified such that the forborne loan is a substantially different financial instrument. Any new loans that

arise following derecognition events in these circumstances would generally be classified as POCI and will continue to be disclosed as forborne.

Loan modifications other than forborne loans

Loan modifications that are not identified as forborne are considered to be commercial restructurings. Where a commercial restructuring results

in a modification (whether legalised through an amendment to the existing terms or the issuance of a new loan contract) such that HSBC’s

rights to the cash flows under the original contract have expired, the old loan is derecognised and the new loan is recognised at fair value. The

rights to cash flows are generally considered to have expired if the commercial restructuring is at market rates and no payment-related

concession has been provided. Modifications of certain higher credit risk wholesale loans are assessed for derecognition, having regard to

changes in contractual terms that either individually or in combination are judged to result in a substantially different financial instrument.

Mandatory and general offer loan modifications that are not borrower specific, for example market-wide customer relief programmes, generally

do not result in derecognition, but their stage allocation is determined considering all available and supportable information under our ECL

impairment policy. Changes made to these financial instruments that are economically equivalent and required by interest rate benchmark

reform do not result in the derecognition or a change in the carrying amount of the financial instrument, but instead require the effective interest

rate to be updated to reflect the change of the interest rate benchmark.

Significant increase in credit risk (stage 2)

An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by considering

the change in the risk of default occurring over the remaining life of the financial instrument. The assessment explicitly or implicitly compares

the risk of default occurring at the reporting date compared with that at initial recognition, taking into account reasonable and supportable

information, including information about past events, current conditions and future economic conditions. The assessment is unbiased,

probability-weighted, and to the extent relevant, uses forward-looking information consistent with that used in the measurement of ECL. The

analysis of credit risk is multifactor. The determination of whether a specific factor is relevant and its weight compared with other factors

depends on the type of product, the characteristics of the financial instrument and the borrower, and the geographical region. Therefore, it is not

possible to provide a single set of criteria that will determine what is considered to be a significant increase in credit risk, and these criteria will

differ for different types of lending, particularly between retail and wholesale. However, unless identified at an earlier stage, all financial assets

are deemed to have suffered a significant increase in credit risk when 30 days past due. In addition, wholesale loans that are individually

assessed, which are typically corporate and commercial customers, and included on a watch or worry list, are included in stage 2.

For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime probability of default (‘PD’), which encompasses a

wide range of information including the obligor’s customer risk rating (‘CRR’), macroeconomic condition forecasts and credit transition

probabilities. For origination CRRs up to 3.3, significant increase in credit risk is measured by comparing the average PD for the remaining term

estimated at origination with the equivalent estimation at the reporting date. The quantitative measure of significance varies depending on the

credit quality at origination as follows:

Origination CRR Significance trigger – PD to increase by

0.1–1.2

15bps

2.1–3.3

30bps

For CRRs greater than 3.3 that are not impaired, a significant increase in credit risk is considered to have occurred when the origination PD has

doubled. The significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit migrations and to

relative changes in external market rates.

Notes on the financial statements

348 HSBC Holdings plc Annual Report and Accounts 2023

For loans originated prior to the implementation of IFRS 9, the origination PD does not include adjustments to reflect expectations of future

macroeconomic conditions since these are not available without the use of hindsight. In the absence of this data, origination PD must be

approximated assuming through-the-cycle PDs and through-the-cycle migration probabilities, consistent with the instrument’s underlying

modelling approach and the CRR at origination. For these loans, the quantitative comparison is supplemented with additional CRR deterioration-

based thresholds, as set out in the table below:

Origination CRR

Additional significance criteria – number of CRR grade notches

deterioration required to identify as significant credit

deterioration(stage 2) (> or equal to)

0.1

5 notches

1.1–4.2

4 notches

4.3–5.1

3 notches

5.2–7.1

2 notches

7.2–8.2

1 notch

8.3

0 notch

Further information about the 23-grade scale used for CRR can be found on page 148.

For retail portfolios, default risk is assessed using a reporting date 12-month PD derived from internal models, which incorporate all available

information about the customer. This PD is adjusted for the effect of macroeconomic forecasts for periods longer than 12months and is

considered to be a reasonable approximation of a lifetime PD measure. Retail exposures are first segmented into homogenous portfolios,

generally by country, product and brand. Within each portfolio, the stage 2 accounts are defined as accounts with an adjusted 12-month PD

greater than the average 12-month PD of loans in that portfolio 12 months before they become 30 days past due. The expert credit risk

judgement is that no prior increase in credit risk is significant. This portfolio-specific threshold therefore identifies loans with a PD higher than

would be expected from loans that are performing as originally expected and higher than that which would have been acceptable at origination.

It therefore approximates a comparison of origination to reporting date PDs.

We continue to refine the retail transfer criteria approach for certain portfolios as additional data becomes available, in order to utilise a more

relative approach. These enhancements take advantage of the increase in origination-related data in the assessment of significant increases in

credit risk by comparing remaining lifetime PD to the comparable remaining term lifetime PD at origination based on portfolio-specific origination

segments.

Unimpaired and without significant increase in credit risk (stage 1)

ECL resulting from default events that are possible within the next 12 months (‘12-month ECL’) are recognised for financial instruments that

remain in stage 1.

Purchased or originated credit impaired

Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses are considered to be POCI. This

population includes new financial instruments recognised in most cases following the derecognition of forborne loans. The amount of change in

lifetime ECL for a POCI loan is recognised in profit or loss until the POCI loan is derecognised, even if the lifetime ECL are less than the amount

of ECL included in the estimated cash flows on initial recognition.

Movement between stages

Financial assets can be transferred between the different categories (other than POCI) depending on their relative increase in credit risk since

initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly increased

since initial recognition based on the assessments described above. In the case of non-performing forborne loans, such financial instruments are

transferred out of stage 3 when they no longer exhibit any evidence of credit impairment and meet the curing criteria as described above.

Measurement of ECL

The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information which is

relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of future

events and economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money and

considers other factors such as climate-related risks.

In general, HSBC calculates ECL using three main components: a probability of default (‘PD’), a loss given default (’LGD’) and the exposure at

default (‘EAD’).

The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead. The

12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the instrument

respectively.

The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to

the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the EAD given the

event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is expected to be realised and

the time value of money.

HSBC Holdings plc Annual Report and Accounts 2023 349

Financial statements

HSBC makes use of the IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in the following

table:

Model Regulatory capital IFRS 9

– Through the cycle (represents long-run average PD throughout

a full economic cycle)

– The definition of default includes a backstop of90+ days past

due

– Point in time (based on current conditions, adjusted totake into

account estimates of future conditions that will impact PD)

– Default backstop of 90+ days past due for all portfolios

EAD – Cannot be lower than current balance – Amortisation captured for term products

LGD

– Downturn LGD (consistent losses expected to be suffered

during a severe but plausible economic downturn)

– Regulatory floors may apply to mitigate risk of underestimating

downturn LGD due to lack of historical data

– Discounted using cost of capital

– All collection costs included

– Expected LGD (based on estimate of loss given default

including the expected impact of future economic conditions

such as changes in value of collateral)

– No floors

– Discounted using the original effective interest rate of the loan

– Only costs associated with obtaining/selling collateral included

Other – Discounted back from point of default to balance sheet date

While 12-month PDs are recalibrated from IRB models where possible, the lifetime PDs are determined by projecting the 12-month PD using a

term structure. For the wholesale methodology, the lifetime PD also takes into account credit migration, i.e. a customer migrating through the

CRR bands over its life.

The ECL for wholesale stage 3 is determined primarily on an individual basis using a discounted cash flow (‘DCF’) methodology. The expected

future cash flows are based on estimates as of the reporting date, reflecting reasonable and supportable assumptions and projections of future

recoveries and expected future receipts of interest.

Collateral is taken into account if it is likely that the recovery of the outstanding amount will include realisation of collateral based on its

estimated fair value of collateral at the time of expected realisation, less costs for obtaining and selling the collateral.

The cash flows are discounted at a reasonable approximation of the original effective interest rate. For significant cases, cash flows under up to

four different scenarios are probability-weighted by reference to the status of the borrower, economic scenarios applied more generally by the

Group and judgement in relation to the likelihood of the work-out strategy succeeding or receivership being required. For less significant cases

where an individual assessment is undertaken, the effect of different economic scenarios and work-out strategies results in an ECL calculation

based on a most likely outcome which is adjusted to capture losses resulting from less likely but possible outcomes. For certain less significant

cases, the bank may use a LGD-based modelled approach to ECL assessment, which factors in a range of economic scenarios.

Period over which ECL is measured

Expected credit loss is measured from the initial recognition of the financial asset. The maximum period considered when measuring ECL (be it

12-month or lifetime ECL) is the maximum contractual period over which HSBC is exposed to credit risk. However, where the financial

instrument includes both a drawn and undrawn commitment and the contractual ability to demand repayment and cancel the undrawn

commitment does not serve to limit HSBC’s exposure to credit risk to the contractual notice period, the contractual period does not determine

the maximum period considered. Instead, ECL is measured over the period HSBC remains exposed to credit risk that is not mitigated by credit

risk management actions. This applies to retail overdrafts and credit cards, where the period is the average time taken for stage 2 exposures to

default or close as performing accounts, determined on a portfolio basis and ranging from between two and six years. In addition, for these

facilities it is not possible to identify the ECL on the loan commitment component separately from the financial asset component. As a result,

the total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial

asset, in which case the ECL is recognised as a provision. For wholesale overdraft facilities, credit risk management actions are taken no less

frequently than on an annual basis.

Forward-looking economic inputs

HSBC applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions representative of

its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected credit losses in most economic

environments. In certain economic environments, additional analysis may be necessary and may result in additional scenarios or adjustments, to

reflect a range of possible economic outcomes sufficient for an unbiased estimate. The detailed methodology is disclosed in ‘Measurement

uncertainty and sensitivity analysis of ECL estimates’ on page 156.

Critical estimates and judgements

The calculation of the Group’s ECL under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant

are set out below:

Judgements Estimates

– Defining what is considered to be a significant increase in credit risk

– Determining the lifetime and point of initial recognition of overdrafts and credit cards

– Selecting and calibrating the PD, LGD and EAD models, which support the calculations,

including making reasonable and supportable judgements about how models react to current

and future economic conditions

– Selecting model inputs and economic forecasts, including determining whether sufficient and

appropriately weighted economic forecasts are incorporated to calculate unbiased expected

credit loss

– Making management adjustments to account for late-breaking events, model and data

limitations and deficiencies, and expert credit judgements

– Selecting applicable recovery strategies for certain wholesale credit-impaired loans

– The section ‘Measurement uncertainty and

sensitivity analysis of ECL estimates’, marked as

audited from page 156, sets out the assumptions

used in determining ECL, and provides an

indication of the sensitivity of the result to the

application of different weightings being applied

to different economic assumptions

Notes on the financial statements

350 HSBC Holdings plc Annual Report and Accounts 2023

(j) Insurance contracts

A contract is classified as an insurance contract where the Group accepts significant insurance risk from another party by agreeing to

compensate that party if it is adversely affected by a specified uncertain future event. An insurance contract may also transfer financial risk, but

is accounted for as an insurance contract if the insurance risk is significant. In addition, the Group issues investment contracts with DPF, which

are also accounted under IFRS 17 ’Insurance Contracts’.

Aggregation of insurance contracts

Individual insurance contracts that are managed together and subject to similar risks are identified as a portfolio. Contracts that are managed

together usually belong to the same product group, and have similar characteristics such as being subject to a similar pricing framework or

similar product management, and are issued by the same legal entity. If a contract is exposed to more than one risk, the dominant risk of the

contract is used to assess whether the contract features similar risks. Each portfolio is further separated by the contract’s expected profitability.

The portfolios are split by their profitability into: (i) contracts that are onerous at initial recognition; (ii) contracts that at initial recognition have no

significant possibility of becoming onerous subsequently; and (iii) the remaining contracts. These profitability groups are then divided by issue

date, with most contracts the Group issues after the transition date being grouped into calendar quarter cohorts. For multi-currency groups of

contracts, the Group considers its groups of contracts as being denominated in a single currency.

The measurement of the insurance contract liability is based on groups of insurance contracts as established at initial recognition, and will

include fulfilment cash flows as well as the CSM representing the unearned profit. The Group has elected to update the estimates used in the

measurement on a year-to-date basis.

Fulfilment cash flows

The fulfilment cash flows comprise the following:

Best estimates of future cash flows

The cash flows within the contract boundary of each contract in the Group include amounts expected to be collected from premiums and

payouts for claims, benefits and expenses, and are projected using a range of scenarios and assumptions in an unbiased way based on the

Group’s demographic and operating experience along with external mortality data where the Group’s own experience data is not sufficiently

large in size to be credible.

Adjustment for the time value of money and financial risks associated with the future cash flows

The estimates of future cash flows are adjusted to reflect the time value of money (i.e. discounting) and the financial risks to derive an expected

present value. The Group generally makes use of stochastic modelling techniques in the estimation for products with options and guarantees.

A bottom-up approach is used to determine the discount rate to be applied to a given set of expected future cash flows. This is derived as the

sum of the risk-free yield and an illiquidity premium. The risk-free yield is determined based on observable market data, where such markets are

considered to be deep, liquid and transparent. When information is not available, management judgement is applied to determine the

appropriate risk-free yield. Illiquidity premiums reflect the liquidity characteristics of the associated insurance contracts.

Risk adjustment for non-financial risk

The risk adjustment reflects the compensation required for bearing the uncertainty about the amount and timing of future cash flows that arises

from non-financial risk. It is calculated as a 75th percentile level of stress over a one-year period. The level of the stress is determined with

reference to external regulatory stresses and internal economic capital stresses.

For the main insurance manufacturing entity in these locations, the one-year 75th percentile level of stress corresponds to the following

percentiles based on an ultimate view of risk over all future years:

– Asia-Pacific (Hong Kong): 60th percentile (2022: 59th percentile).

– Europe (France): 60th percentile (2022: 60th percentile).

– Latin America (Mexico): 65th percentile (2022: 66th percentile).

The Group does not disaggregate changes in the risk adjustment between insurance service result (comprising insurance revenue and insurance

service expense) and insurance finance income or expenses. All changes are included in the insurance service result.

Measurement models

The variable fee approach (‘VFA’) measurement model is used for most of the contracts issued by the Group, which is mandatory upon meeting

the following eligibility criteria at inception:

– the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;

– the Group expects to pay to the policyholder a substantial share of the fair value returns on the underlying items. The Group considers that a

substantial share is a majority of returns; and

– the Group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value

of the underlying items. The Group considers that a substantial proportion is a majority proportion of change on a present value probability-

weighted average of all scenarios.

For some contracts measured under VFA, the other comprehensive income (‘OCI’) option is used. The OCI option is applied where the

underlying items held by the Group are not accounted for at fair value through profit or loss. Under this option, only the amount that matches

income or expenses recognised in profit or loss on underlying items is included in finance income or expenses for these insurance contracts,

and hence results in the elimination of accounting mismatches. The remaining amount of finance income or expenses for these insurance

contracts issued for the period is recognised in OCI. In addition, the risk mitigation option is used for a number of economic offsets against the

instruments that meet specific requirements.

The remaining contracts issued and the reinsurance contracts held are accounted for under the general measurement model (‘GMM’).

HSBC Holdings plc Annual Report and Accounts 2023 351

Financial statements

CSM and coverage units

The CSM represents the unearned profit and results in no income or expense at initial recognition when the group of contracts is profitable. The

CSM is adjusted at each subsequent reporting period for changes in fulfilment cash flows relating to future service (e.g. changes in non-

economic assumptions, including mortality and morbidity rates). For initial recognition of onerous groups of contracts and when groups of

contracts become onerous subsequently, losses are recognised in insurance service expense immediately.

For groups of contracts measured using the VFA, changes in the Group’s share of the underlying items, and economic experience and economic

assumption changes adjust the CSM, whereas these changes do not adjust the CSM under the GMM, but are recognised in profit or loss as

they arise. However, under the risk mitigation option for VFA contracts, the changes in the fulfilment cash flows and the changes in the Group’s

share in the fair value return on underlying items that the instruments mitigate are not adjusted in CSM but recognised in profit or loss. The risk

mitigating instruments are primarily reinsurance contracts held.

The CSM is systematically recognised in insurance revenue to reflect the insurance contract services provided, based on the coverage units of

the group of contracts. Coverage units are determined by the quantity of benefits and the expected coverage period of the contracts.

The Group identifies the quantity of the benefits provided as follows:

– Insurance coverage: This is based on the expected net policyholder insurance benefit at each period after allowance for decrements, where

net policyholder insurance benefit refers to the amount of sum assured less the fund value or surrender value.

– Investment services (including both investment-return service and investment-related service): This is based on a constant measure basis

which reflects the provision of access for the policyholder to the facility.

For contracts that provide both insurance coverage and investment services, coverage units are weighted according to the expected present

value of the future cash outflows for each service.

Insurance service result

Insurance revenue reflects the consideration to which the Group expects to be entitled in exchange for the provision of coverage and other

insurance contract services (excluding any investment components). Insurance service expenses comprise the incurred claims and other

incurred insurance service expenses (excluding any investment components), and losses on onerous groups of contracts and reversals of such

losses.

Insurance finance income and expenses

Insurance finance income and expenses comprise the change in the carrying amount of the group of insurance contracts arising from the

effects of the time value of money, financial risk and changes therein. For VFA contracts, changes in the fair value of underlying items (excluding

additions and withdrawals) are recognised in insurance finance income or expenses.

(k) Employee compensation and benefits

Share-based payments

HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for the

provision of their services.

The vesting period for these schemes may commence before the legal grant date if the employees have started to render services in respect of

the award before the legal grant date, where there is a shared understanding of the terms and conditions of the arrangement. Expenses are

recognised when the employee starts to render service to which the award relates.

Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of vesting

recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a cancellation, and the

amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.

Post-employment benefit plans

HSBC operates a number of pension schemes including defined benefit, defined contribution and post-employment benefit schemes.

Payments to defined contribution schemes are charged as an expense as the employees render service.

Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly

comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.

Remeasurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets excluding interest

and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net defined

benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets (see Note 1.2(c)),

after applying the asset ceiling test, where the net defined benefit surplus is limited to the present value of available refunds and reductions in

future contributions to the plan.

The costs of obligations arising from other post-employment plans are accounted for on the same basis as defined benefit pension plans.

Critical estimates and judgements

The most significant critical estimates relate to the determination of key assumptions applied in calculating the defined benefit pension obligation for the

principal plan.

Judgements Estimates

– A range of assumptions could be applied, and different assumptions could

significantly alter the defined benefit obligation and the amounts recognised in

profit or loss or OCI.

– The calculation of the defined benefit pension obligation includes assumptions with

regard to the discount rate, inflation rate, pension payments and deferred

pensions, pay and mortality. Management determines these assumptions in

consultation with the plan’s actuaries.

– Key assumptions used in calculating the defined benefit pension obligation for the

principal plan and the sensitivity of the calculation to different assumptions are

described in Note 5.

Notes on the financial statements

352 HSBC Holdings plc Annual Report and Accounts 2023

(l) Tax

Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to

items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement as the related

item appears.

Current tax is the tax expected to be payable on the taxable profit for the year and on any adjustment to tax payable in respect of previous years.

HSBC provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the

amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods

in which the assets will be realised or the liabilities settled.

In assessing the probability and sufficiency of future taxable profit, management considers the availability of evidence to support the recognition

of deferred tax assets, taking into account the inherent risks in long-term forecasting, including climate change-related, and drivers of recent

history of tax losses where applicable. Management also considers the future reversal of existing taxable temporary differences and tax

planning strategies, including corporate reorganisations.

Current and deferred tax are calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.

Critical estimates and judgements

The recognition of deferred tax assets depends on judgements and estimates.

Judgements Estimates

– Specific judgements supporting deferred tax assets are described in Note7. – The recognition of deferred tax assets is sensitive to estimates of

future cash flows projected for periods for which detailed forecasts

are available and to assumptions regarding the long-term pattern of

cash flows thereafter, on which forecasts of future taxable profit are

based, and which affect the expected recovery periods and the

pattern of utilisation of tax losses and tax credits. See Note 7 for

further detail.

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of deferred tax assets in the next

financial year, but does consider this to be an area that is inherently judgemental.

(m) Provisions, contingent liabilities and guarantees

Provisions

Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive

obligation that has arisen as a result of past events and for which a reliable estimate can be made.

Critical estimates and judgements

The recognition and measurement of provisions requires the Group to make a number of judgements, assumptions and estimates. The most significant

are set out below:

Judgements Estimates

– Determining whether a present obligation exists. Professional advice is

taken on the assessment of litigation and similar obligations.

– Provisions for legal proceedings and regulatory matters typically require a

higher degree of judgement than other types of provisions. When matters

are at an early stage, accounting judgements can be difficult because of the

high degree of uncertainty associated with determining whether a present

obligation exists, and estimating the probability and amount of any outflows

that may arise. As matters progress, management and legal advisers

evaluate on an ongoing basis whether provisions should be recognised,

revising previous estimates as appropriate. At more advanced stages, it is

typically easier to make estimates around a better defined set of possible

outcomes.

– Provisions for legal proceedings and regulatory matters remain very

sensitive to the assumptions used in the estimate. There could be a

wider range of possible outcomes for any pending legal proceedings,

investigations or inquiries. As a result it is often not practicable to

quantify a range of possible outcomes for individual matters. It is also

not practicable to meaningfully quantify ranges of potential outcomes

in aggregate for these types of provisions because of the diverse

nature and circumstances of such matters and the wide range of

uncertainties involved.

Contingent liabilities, contractual commitments and guarantees

Contingent liabilities

Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related to

legal proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of settlement is

remote.

Financial guarantee contracts

Liabilities under financial guarantee contracts that are not classified as insurance contracts are recorded initially at their fair value, which is

generally the fee received or present value of the fee receivable.

(n) Impairment of non-financial assets

Software under development is tested for impairment at least annually. Other non-financial assets are property, plant and equipment, intangible

assets (excluding goodwill) and right-of-use assets. They are tested for impairment at the individual asset level when there is indication of

impairment at that level, or at the CGU level for assets that do not have a recoverable amount at the individual asset level. In addition,

impairment is also tested at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are considered to be the

principal operating legal entities divided by global business.

HSBC Holdings plc Annual Report and Accounts 2023 353

Financial statements

Impairment testing compares the carrying amount of the non-financial asset or CGU with its recoverable amount, which is the higher of the fair

value less costs of disposal or the value in use. The carrying amount of a CGU comprises the carrying amount of its assets and liabilities,

including non-financial assets that are directly attributable to it and non-financial assets that can be allocated to it on a reasonable and consistent

basis. Non-financial assets that cannot be allocated to an individual CGU are tested for impairment at an appropriate grouping of CGUs. The

recoverable amount of the CGU is the higher of the fair value less costs of disposal of the CGU, which is determined by independent and

qualified valuers where relevant, and the value in use, which is calculated based on appropriate inputs (see Note 21).

When the recoverable amount of a CGU is less than its carrying amount, an impairment loss is recognised in the income statement to the

extent that the impairment can be allocated on a pro-rata basis to the non-financial assets by reducing their carrying amounts to the higher of

their respective individual recoverable amount or nil. Impairment is not allocated to the financial assets in a CGU.

Impairment losses recognised in prior periods for non-financial assets are reversed when there has been a change in the estimate used to

determine the recoverable amount. The impairment loss is reversed to the extent that the carrying amount of the non-financial assets would not

exceed the amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in prior

periods.

Critical estimates and judgements

The review of goodwill and other non-financial assets for impairment reflects management’s best estimate of the future cash flows of the CGUs and

the rates used to discount these cash flows, both of which are subject to uncertain factors as described in the ‘Critical estimates and judgements’ in

Note 1.2(a).

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of goodwill and non-financial assets in

the next financial year, but does consider this to be an area that is inherently judgemental.

(o) Non-current assets and disposal groups held for sale

HSBC classifies non-current assets or disposal groups (including assets and liabilities) as held for sale when their carrying amounts will be

recovered principally through sale rather than through continuing use. To be classified as held for sale, the non-current asset or disposal group

must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or

disposal groups), and the sale must be highly probable. For a sale to be highly probable, the appropriate level of management must be

committed to a plan to sell the asset (or disposal group) and an active programme to locate a buyer and complete the plan must have been

initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.

In addition, the sale should be expected to qualify as a completed sale within one year from the date of classification and actions required to

complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Held for sale assets and disposal groups are measured at the lower of their carrying amount and fair value less costs to sell except for those

assets and liabilities that are not within the scope of the measurement requirements of IFRS 5. If the carrying amount of the non-current asset

(or disposal group) is greater than the fair value less costs to sell, an impairment loss for any initial or subsequent write-down of the asset or

disposal group to fair value less costs to sell is recognised. Any such impairment loss is first allocated against the non-current assets that are in

scope of IFRS 5 for measurement. This first reduces the carrying amount of any goodwill allocated to the disposal group, and then to the other

non-current assets of the disposal group pro rata on the basis of the carrying amount of each asset in the disposal group. Thereafter, any

impairment loss in excess of the carrying amount of the non-current assets in scope of IFRS 5 for measurement is recognised against the total

assets of the disposal group.

Critical judgements

The classification as held for sale depends on certain judgements:

Judgements

Management judgement is required in determining whether the IFRS 5 held for sale criteria are met, including whether a sale is highly probable and

expected to complete within one year of classification. The exercise of judgement will normally consider the likelihood of successfully securing any

necessary regulatory or governmental approvals, which are almost always required for sales of banking businesses, and sanctions risk. For large and

complex plans, judgement will also include an assessment of the enforceability of any binding sale agreement, the nature and magnitude of any

disincentives for non-performance, and the ability of the counterparty to undertake necessary pre-completion preparatory work, comply with conditions

precedent, and otherwise be able to comply with contractual undertakings to achieve completion within the expected timescale. Once classified as

held for sale, judgement is required to be applied on a continuous basis to ensure that classification remains appropriate in future accounting periods.

(p) Hyperinflationary accounting

Hyperinflationary accounting is applied to those subsidiary operations in countries where the three-year cumulative inflation rate is approaching

or exceeding 100%. In 2023, this affected the Group’s operations in Argentina and Türkiye. The Group applies IAS 29 to the underlying financial

information of relevant subsidiaries to restate their local currency results and financial position so as to be stated in terms of the measuring unit

current at the end of the reporting period. Those restated results are translated into the Group’s presentation currency of US dollars for

consolidation at the closing rate at the balance sheet date. Group comparatives are not restated for inflation and consequential adjustments to

the opening balance sheet in relation to hyperinflationary subsidiaries are presented in other comprehensive income. The hyperinflationary gain

or loss in respect of the net monetary position of the relevant subsidiary is included in profit or loss.

When applying hyperinflation accounting for the first time, the underlying financial information is restated in terms of the measuring unit current

at the end of the reporting period as if the relevant economy had always been hyperinflationary. Group comparatives are not restated for such

historical adjustments.

Notes on the financial statements

354 HSBC Holdings plc Annual Report and Accounts 2023

Net fee income

Net fee income by global business

2023

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

$m $m $m $m $m

Funds under management 1,763 71 539 — 2,373

Cards 2,385 353 38 — 2,776

Credit facilities 103 856 615 — 1,574

Broking income 463 22 592 — 1,077

Account services 402 788 347 — 1,537

Unit trusts 727 10 1 — 738

Underwriting — 3 583 — 586

Global custody 128 6 730 — 864

Remittances 86 389 347 1 823

Imports/exports — 470 154 — 624

Insurance agency commission 280 18 — — 298

Other 1,433 1,161 2,458 (2,706) 2,346

Fee income 7,770 4,147 6,404 (2,705) 15,616

Less: fee expense (2,416) (210) (3,858) 2,713 (3,771)

Net fee income 5,354 3,937 2,546 8 11,845

2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

$m $m $m $m $m

Funds under management 1,765 107 500 (12) 2,360

Cards 2,146 313 32 — 2,491

Credit facilities 100 783 591 — 1,474

Broking income 576 40 635 — 1,251

Account services 337 730 344 1 1,412

Unit trusts 682 14 — — 696

Underwriting 1 2 443 (5) 441

Global custody 140 19 762 — 921

Remittances 72 380 346 1 799

Imports/exports — 493 141 — 634

Insurance agency commission 283 16 1 — 300

Other 1,330 1,102 2,376 (2,463) 2,345

Fee income 7,432 3,999 6,171 (2,478) 15,124

Less: fee expense (2,128) (212) (3,459) 2,445 (3,354)

Net fee income 5,304 3,787 2,712 (33) 11,770

2021

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

$m $m $m $m $m

Funds under management 1,984 126 546 — 2,656

Cards 1,949 240 23 1 2,213

Credit facilities 103 833 690 1 1,627

Broking income 863 69 669 — 1,601

Account services 429 677 340 6 1,452

Unit trusts 1,065 23 — — 1,088

Underwriting 4 6 1,009 (2) 1,017

Global custody 167 24 787 — 978

Remittances 75 357 343 — 775

Imports/exports 1 474 145 — 620

Insurance agency commission 324 17 — — 341

Other 1,305 1,077 2,503 (2,465) 2,420

Fee income 8,269 3,923 7,055 (2,459) 16,788

Less: fee expense (2,375) (284) (3,452) 2,420 (3,691)

Net fee income 5,894 3,639 3,603 (39) 13,097

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective

needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data

have been re-presented accordingly.

HSBC Holdings plc Annual Report and Accounts 2023 355

Financial statements

Net fee income included $6,971m of fees earned on financial assets that were not at fair value through profit or loss, other than amounts

included in determining the effective interest rate (2022: $6,410m; 2021: $6,742m), $1,872m of fees payable on financial liabilities that were not

at fair value through profit or loss, other than amounts included in determining the effective interest rate (2022: $1,613m; 2021:$1,520m),

$3,452m of fees earned on trust and other fiduciary activities (2022: $3,492m; 2021: $3,849m) and $333m of fees payable relating to trust and

other fiduciary activities (2022: $370m; 2021: $305m).

Net income/(expense) from financial instruments measured at fair value

through profit or loss

2023 2022

2021

$m $m $m

Net income/(expense) arising on:

Net trading activities 20,391 2,372 6,668

Other instruments managed on a fair value basis (3,730) 7,906 1,076

Net income from financial instruments held for trading or managed on a fair value basis 16,661 10,278 7,744

Financial assets held to meet liabilities under insurance and investment contracts 8,086 (14,392) 4,134

Liabilities to customers under investment contracts (199) 561 (81)

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,

measured at fair value through profit or loss

7,887 (13,831) 4,053

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

HSBC Holdings

2023 2022 2021

$m $m $m

Net income/(expense) arising on:

– trading activities (546) 2,094 87

– other instruments managed on a fair value basis 1,609 35 23

Net income from financial instruments held for trading or managed on a fair value basis 1,063 2,129 110

Derivatives managed in conjunction with HSBC Holdings-issued debt securities 426 (1,529) (625)

Other changes in fair value (1,894) 3,673 974

Changes in fair value of designated debt and related derivatives (1,468) 2,144 349

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss 3,692 (2,409) (420)

Year ended 31 Dec 3,287 1,864 39

Insurance business

Insurance service result

Year ended 31 Dec 2023 Year ended 31 Dec 2022¹

Life direct

participating

and investment

DPF contracts

Life other

contracts

Total

Life direct

participating and

investment DPF

contracts

Life other

contracts

Total

$m $m $m $m $m $m

Insurance revenue

Amounts relating to changes in liabilities for remaining coverage 1,626 470 2,096 1,399 446 1,845

Contractual service margin recognised for services provided 975 151 1,126 781 151 932

Change in risk adjustment for non-financial risk for risk expired 21 15 36 17 17 34

Expected incurred claims and other insurance service expenses 594 304 898 528 278 806

Other 36 — 36 73 — 73

Recovery of insurance acquisition cash flows 109 54 163 102 30 132

Total insurance revenue 1,735 524 2,259 1,501 476 1,977

Insurance service expenses

Incurred claims and other insurance service expenses (615) (292) (907) (573) (280) (853)

Losses and reversal of losses on onerous contracts (32) (77) (109) (84) (86) (170)

Amortisation of insurance acquisition cash flows (109) (54) (163) (102) (30) (132)

Adjustments to liabilities for incurred claims (1) (1) (2) (2) (11) (13)

Total insurance service expenses (757) (424) (1,181) (761) (407) (1,168)

Total insurance service results 978 100 1,078 740 69 809

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

2 ‘Life direct participating and investment DPF contracts’ are substantially measured under the variable fee approach measurement model.

3 ‘Life other contracts’ are measured under the general measurement model and excludes reinsurance contracts.

Notes on the financial statements

356 HSBC Holdings plc Annual Report and Accounts 2023

Net investment return

Year ended 31 Dec 2023 Year ended 31 Dec 2022¹

Life direct

participating

and

investment

DPF contracts

Life other

contracts Total

Life direct

participating

and

investment

DPF contracts

Life other

contracts Total

$m $m $m $m $m $m

Investment return

Amounts recognised in profit or loss

7,663 214 7,877 (13,520) (181) (13,701)

Amounts recognised in OCI

493 — 493 (2,392) — (2,392)

Total investment return (memorandum) 8,156 214 8,370 (15,912) (181) (16,093)

Net finance income/(expense)

Changes in fair value of underlying items of direct participating contracts (7,995) — (7,995) 15,937 — 15,937

Effect of risk mitigation option (35) — (35) 99 — 99

Interest accreted — (127) (127) — (80) (80)

Effect of changes in interest rates and other financial assumptions (12) (121) (133) — 233 233

Effect of measuring changes in estimates at current rates and adjusting

the CSM at rates on initial recognition

— (10) (10) — 3 3

Total net finance income/(expense) from insurance contracts (8,042) (258) (8,300) 16,036 156 16,192

Represented by:

Amounts recognised in profit or loss (7,551) (258) (7,809) 13,643 156 13,799

Amounts recognised in OCI (491) — (491) 2,393 — 2,393

Total net investment results 114 (44) 70 124 (25) 99

Represented by:

Amounts recognised in profit or loss 112 (44) 68 123 (25) 98

Amounts recognised in OCI 2 — 2 1 — 1

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

2 Total Group ‘Net income/(expense) from assets and liabilities of insurance business, including related derivatives, measured at fair value through profit

or loss’ of $7,886m gain (2022: $13,831m loss) includes returns on assets and liabilities supporting insurance policies of $7,627m (2022: $13,949m

loss) and on shareholder assets of $259m (2022: $118m gain). Investment returns of $7,877m (2022: $13,701m loss) include gains of $7,627m (2022:

$13,949m loss) on underlying assets supporting insurance liabilities reported in ‘Net income/(expense) from assets and liabilities of insurance

businesses, including related derivatives, measured at fair value through profit or loss’, $257m gains (2022: $248m gain) reported in ‘Net interest

income’ and $7m loss (2022: nil) reported in ‘Other operating income’.

3 ‘Amounts recognised in OCI’ gross of tax for the year ended 31 December 2023 included fair value gains of $497m (2022: $2,396m loss) and

impairment of $4m (2022: $4m impairment reversals).

Reconciliation of amounts included in other comprehensive income for financial assets measured at fair value through other comprehensive

income – assets supporting contracts measured under the modified retrospective approach

2023 2022

$m $m

Balance at 1 Jan (973) 622

Net change in fair value 451 (2,099)

Net amount reclassified to profit or loss (6) (2)

Related income tax (115) 543

Foreign exchange and other (27) (37)

Balance at 31 Dec (670) (973)

HSBC Holdings plc Annual Report and Accounts 2023 357

Financial statements

Movements in carrying amounts of insurance contracts – analysis by remaining coverage and incurred claims

Year ended 31 Dec 2023

Life direct participating and investment DPF

contracts

Life other contracts

Liabilities for remaining

coverage:

Liabilities for remaining

coverage:

Excluding

loss

component

Loss

component

Incurred

claims Total

Excluding

loss

component

Loss

component

Incurred

claims Total Total

$m $m $m $m $m $m $m $m $m

Opening assets (5) — — (5) (187) 21 35 (131) (136)

Opening liabilities 104,676 114 355 105,145 3,359 109 203 3,671 108,816

Net opening balance at 1 Jan 2023 104,671 114 355 105,140 3,172 130 238 3,540 108,680

Changes in the statement of profit or

loss and other comprehensive income

Insurance revenue

Contracts under the fair value approach (508) — — (508) (196) — — (196) (704)

Contracts under the modified

retrospective approach

(148) — — (148) (22) — — (22) (170)

Other contracts

(1,079) — — (1,079) (306) — — (306) (1,385)

Total insurance revenue (1,735) — — (1,735) (524) — — (524) (2,259)

Insurance service expenses

Incurred claims and other insurance

service expenses

— (6) 621 615 — (24) 316 292 907

Amortisation of insurance acquisition

cash flows

109 — — 109 54 — — 54 163

Losses and reversal of losses on

onerous contracts

— 32 — 32 — 77 — 77 109

Adjustments to liabilities for incurred

claims

— — 1 1 — — 1 1 2

Total insurance service expenses 109 26 622 757 54 53 317 424 1,181

Investment components (8,104) — 8,104 — (818) — 818 — —

Insurance service result (9,730) 26 8,726 (978) (1,288) 53 1,135 (100) (1,078)

Net finance (income)/expense from

insurance contracts

8,042 — — 8,042 254 3 1 258 8,300

Other movements recognised in the

statement of profit or loss

513 (5) (214) 294 (8) 4 (13) (17) 277

Effect of movements in exchange rates 942 1 6 949 25 (2) 8 31 980

Total changes in the statement of

profit or loss and other

comprehensive income

(233) 22 8,518 8,307 (1,017) 58 1,131 172 8,479

Cash flows

Premiums received 12,616 — — 12,616 1,256 — — 1,256 13,872

Claims and other insurance service

expenses paid, including investment

components, and other cash flows

(15) — (8,502) (8,517) 1 — (1,112) (1,111) (9,628)

Insurance acquisition cash flows (522) — — (522) (282) — — (282) (804)

Total cash flows 12,079 — (8,502) 3,577 975 — (1,112) (137) 3,440

Other movements 14 (14) — — (9) (13) 22 — —

Net closing balance at 31 Dec 2023 116,531 122 371 117,024 3,121 175 279 3,575 120,599

Closing assets (15) 1 1 (13) (279) (16) 56 (239) (252)

Closing liabilities 116,546 121 370 117,037 3,400 191 223 3,814 120,851

Net closing balance at 31 Dec 2023 116,531 122 371 117,024 3,121 175 279 3,575 120,599

Notes on the financial statements

358 HSBC Holdings plc Annual Report and Accounts 2023

Movements in carrying amounts of insurance contracts – analysis by remaining coverage and incurred claims (continued)

Year ended 31 Dec 2022

Life direct participating and investment DPF

contracts Life other contracts

Liabilities for remaining

coverage:

Liabilities for remaining

coverage:

Excluding

loss

component

Loss

component

Incurred

claims Total

Excluding

loss

component

Loss

component

Incurred

claims Total Total

$m $m $m $m $m $m $m $m $m

Opening assets — — — — (159) 7 36 (116) (116)

Opening liabilities 114,952 93 226 115,271 3,825 67 144 4,036 119,307

Net opening balance at 1 Jan 2022 114,952 93 226 115,271 3,666 74 180 3,920 119,191

Changes in the statement of profit or loss

and other comprehensive income

Insurance revenue

Contracts under the fair value approach (571) — — (571) (234) — — (234) (805)

Contracts under the modified retrospective

approach

(147) — — (147) (24) — — (24) (171)

Other contracts

(783) — — (783) (218) — — (218) (1,001)

Total insurance revenue (1,501) — — (1,501) (476) — — (476) (1,977)

Insurance service expenses

Incurred claims and other insurance service

expenses

— 5 568 573 — (6) 286 280 853

Amortisation of insurance acquisition cash

flows

102 — — 102 30 — — 30 132

Losses and reversal of losses on onerous

contracts

— 84 — 84 — 86 — 86 170

Adjustments to liabilities for incurred claims — — 2 2 — — 11 11 13

Total insurance service expenses 102 89 570 761 30 80 297 407 1,168

Investment components (5,487) — 5,487 — (549) — 549 — —

Insurance service result (6,886) 89 6,057 (740) (995) 80 846 (69) (809)

Net finance (income)/expense from

insurance contracts

(16,038) — 2 (16,036) (154) 2 (4) (156) (16,192)

Effect of movements in exchange rates (2,159) (4) (11) (2,174) (88) (2) (3) (93) (2,267)

Total changes in the statement of profit or

loss and other comprehensive income

(25,083) 85 6,048 (18,950) (1,237) 80 839 (318) (19,268)

Cash flows

Premiums received 12,740 — — 12,740 882 — — 882 13,622

Claims and other insurance service

expenses paid, including investment

components, and other cash flows

— — (5,783) (5,783) — — (880) (880) (6,663)

Insurance acquisition cash flows (423) — — (423) (162) — — (162) (585)

Total cash flows 12,317 — (5,783) 6,534 720 — (880) (160) 6,374

Acquisition of subsidiaries and other

movements

2,485 (64) (136) 2,285 23 (24) 99 98 2,383

Net closing balance at 31 Dec 2022 104,671 114 355 105,140 3,172 130 238 3,540 108,680

Closing assets (5) — — (5) (187) 21 35 (131) (136)

Closing liabilities 104,676 114 355 105,145 3,359 109 203 3,671 108,816

Net closing balance at 31 Dec 2022 104,671 114 355 105,140 3,172 130 238 3,540 108,680

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

2 ‘Other contracts’ are those contracts measured by applying IFRS 17 from inception of the contracts. These include contracts measured under the full

retrospective approach at transition and contracts incepted after transition and excludes reinsurance contracts.

3 ‘Net finance (income)/expense from insurance contracts’ expense of $8,300m (2022: $16,192m income) comprises expense of $7,809m (2022:

$13,799m income) recognised in the statement of profit or loss and expense of $491m (2022: $2,393m income) recognised in the statement of other

comprehensive income.

HSBC Holdings plc Annual Report and Accounts 2023 359

Financial statements

Movements in carrying amounts of insurance contracts – analysis by measurement component

Year ended 31 Dec 2023

Life direct participating and investment DPF contracts Life other contracts

Estimates

of present

value of

future cash

flows and

risk

adjustment

Contractual service margin

Estimates

of present

value of

future cash

flows and

risk

adjustment

Contractual service margin

Contracts

under the

fair value

approach

Contracts

under the

modified

retros-

pective

approach

Other

contracts

Total

Contracts

under the

fair value

approach

Contracts

under the

modified

retros-

pective

approach

Other

contracts

Total Total

$m $m $m $m $m $m $m $m $m $m $m

Opening assets (18) 3 — 10 (5) (308) 86 — 91 (131) (136)

Opening liabilities 96,174 4,364 792 3,815

105,145

3,162 325 18 166 3,671

108,816

Net opening balance at

1 Jan 2023

96,156 4,367 792 3,825

105,140

2,854 411 18 257 3,540

108,680

Changes in the

statement of profit or

loss and other

comprehensive income

Changes that relate to

current services

Contractual service

margin recognised for

services provided

— (188) (70) (717) (975) — (69) (6) (76) (151) (1,126)

Change in risk adjustment

for non-financial risk

expired

(21) — — — (21) (15) — — — (15) (36)

Experience adjustments 21 — — — 21 (12) — — — (12) 9

Changes that relate to

future services

Contracts initially

recognised in the year

(1,606) — — 1,619 13 (176) — — 207 31 44

Changes in estimates that

adjust the contractual

service margin

(771) 368 (33) 436 — 21 26 6 (53) — —

Changes in estimates that

result in losses and

reversal of losses on

onerous contracts

19 — — — 19 46 — — — 46 65

Changes that relate to

past services

Adjustments to liabilities

for incurred claims

1 — — — 1 1 — — — 1 2

Other movements

recognised in insurance

service result

(36) — — — (36) — — — — — (36)

Insurance service result (2,393) 180 (103) 1,338 (978) (135) (43) — 78 (100) (1,078)

Net finance (income)/

expense from insurance

contracts

8,042 — — — 8,042 235 11 — 12 258 8,300

Other movements

recognised in the

statement of profit or loss

145 133 (1) 17 294 (43) 6 — 20 (17) 277

Effect of movements in

exchange rates

883 2 27 37 949 — 12 1 18 31 980

Total changes in the

statement of profit or

loss and other

comprehensive income 6,677 315 (77) 1,392 8,307 57 (14) 1 128 172 8,479

Cash flows

Premiums received 12,616 — — — 12,616 1,256 — — — 1,256 13,872

Claims, other insurance

service expenses paid

(including investment

components) and other

cash flows

(8,517) — — — (8,517) (1,111) — — —

(1,111)

(9,628)

Insurance acquisition cash

flows

(522) — — — (522) (282) — — — (282) (804)

Total cash flows 3,577 — — — 3,577 (137) — — — (137) 3,440

Net closing balance at

31 Dec 2023

106,410 4,682 715 5,217

117,024

2,774 397 19 385 3,575

120,599

Closing assets (30) 3 — 14 (13) (339) 36 — 64 (239) (252)

Closing liabilities 106,440 4,679 715 5,203

117,037

3,113 361 19 321 3,814

120,851

Net closing balance at

31 Dec 2023

106,410 4,682 715 5,217

117,024

2,774 397 19 385 3,575

120,599

Notes on the financial statements

360 HSBC Holdings plc Annual Report and Accounts 2023

Movements in carrying amounts of insurance contracts – analysis by measurement component (continued)

Year ended 31 Dec 2022

Life direct participating and investment DPF contracts Life other contracts

Estimates

of present

value of

future cash

flows and

risk

adjustment

Contractual service margin

Estimates

of present

value of

future cash

flows and

risk

adjustment

Contractual service margin

Contracts

under the

fair value

approach

Contracts

under the

modified

retros-

pective

approach

Other

contracts

Total

Contracts

under the

fair value

approach

Contracts

under the

modified

retros-

pective

approach

Other

contracts

Total Total

$m $m $m $m $m $m $m $m $m $m $m

Opening assets — — — — — (236) 57 — 63 (116) (116)

Opening liabilities 105,861 5,823 704 2,883 115,271 3,532 331 26 147 4,036 119,307

Net opening balance at 1 Jan

2022

105,861 5,823 704 2,883 115,271 3,296 388 26 210 3,920 119,191

Changes in the statement of

profit or loss and other

comprehensive income

Changes that relate to current

services

Contractual service margin

recognised for services

provided

— (297) (69) (415) (781) — (69) (6) (76) (151) (932)

Change in risk adjustment for

non-financial risk expired

(17) — — — (17) (17) — — — (17) (34)

Experience adjustments 45 — — — 45 2 — — — 2 47

Changes that relate to future

services

Contracts initially recognised

in the year

(1,092) — — 1,101 9 (110) — — 117 7 16

Changes in estimates that

adjust contractual service

margin

820 (1,349) 208 321 — (7) 23 — (16) — —

Changes in estimates that

result in losses and reversal of

losses on onerous contracts

75 — — — 75 79 — — — 79 154

Changes that relate to past

services

Adjustments to liabilities for

incurred claims

2 — — — 2 11 — — — 11 13

Other movements recognised

in insurance service result

(73) — — — (73) — — — — — (73)

Insurance service result (240) (1,646) 139 1,007 (740) (42) (46) (6) 25 (69) (809)

Net finance (income)/expense

from insurance contracts

(16,025) (10) — (1) (16,036) (169) 7 — 6 (156) (16,192)

Effect of movements in

exchange rates

(2,082) (16) (51) (25) (2,174) (74) (17) (2) — (93) (2,267)

Total changes in the

statement of profit or loss and

other comprehensive income

(18,347) (1,672) 88 981 (18,950) (285) (56) (8) 31 (318) (19,268)

Cash flows

Premiums received 12,740 — — — 12,740 882 — — — 882 13,622

Claims, other insurance

service expenses paid

(including investment

components) and other cash

flows

(5,783) — — — (5,783) (880) — — — (880) (6,663)

Insurance acquisition cash

flows

(423) — — — (423) (162) — — — (162) (585)

Total cash flows 6,534 — — — 6,534 (160) — — — (160) 6,374

Acquisition of subsidiaries and

other movements

2,108 216 — (39) 2,285 3 79 — 16 98 2,383

Net closing balance at

31 Dec 2022

96,156 4,367 792 3,825 105,140 2,854 411 18 257 3,540 108,680

Closing assets (18) 3 — 10 (5) (308) 86 — 91 (131) (136)

Closing liabilities 96,174 4,364 792 3,815 105,145 3,162 325 18 166 3,671 108,816

Net closing balance at

31 Dec 2022

96,156 4,367 792 3,825 105,140 2,854 411 18 257 3,540 108,680

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

2 ‘Other contracts' are those contracts measured by applying IFRS 17 from inception of the contracts. These include contracts measured under the full

retrospective approach at transition and contracts incepted after transition and excludes reinsurance contracts.

3 ‘Net finance (income)/expense from insurance contracts’ expense of $8,300m (2022: $16,192m income) comprises expense of $7,809m (2022:

$13,799m income) recognised in the statement of profit or loss and expense of $491m (2022: $2,393m income) recognised in the statement of other

comprehensive income.

HSBC Holdings plc Annual Report and Accounts 2023 361

Financial statements

Effect of contracts initially recognised in the year

Year ended 31 Dec 2023 Year ended 31 Dec 2022

Profitable

contracts

issued

Onerous

contracts

issued

Total

Profitable

contracts

issued

Onerous

contracts

issued

Total

$m $m $m $m $m $m

Life direct participating and investment DPF contracts

Estimates of present value of cash outflows 12,418 215 12,633 9,714 123 9,837

– insurance acquisition cash flows 602 21 623 401 16 417

– claims and other insurance service expenses payable 11,816 194 12,010 9,313 107 9,420

Estimates of present value of cash inflows (14,074) (204) (14,278) (10,844) (115) (10,959)

Risk adjustment for non-financial risk 37 2 39 29 1 30

Contractual service margin 1,619 — 1,619 1,101 — 1,101

Losses recognised on initial recognition — (13) (13) — (9) (9)

Life other contracts

Estimates of present value of cash outflows 1,116 464 1,580 640 111 751

– insurance acquisition cash flows 106 50 156 57 9 66

– claims and other insurance service expenses payable 1,010 414 1,424 583 102 685

Estimates of present value of cash inflows (1,350) (438) (1,788) (778) (105) (883)

Risk adjustment for non-financial risk 27 5 32 21 1 22

Contractual service margin 207 — 207 117 — 117

Losses recognised on initial recognition — (31) (31) — (7) (7)

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

Present value of expected future cash flows of insurance contract liabilities and contractual service margin

Less than

1 year

1–2

years

2–3

years

3–4

years

4–5

years

5–10

years

10–20

years

Over 20

years Total

$m $m $m $m $m $m $m $m $m

Insurance liability future cash flows

Life direct participating and investment DPF contracts (2,620) (545) 2,321 2,419 3,344 11,695 23,351 65,897

105,862

Life other contracts 1,276 362 (347) 4 (45) 36 102 1,628 3,016

Insurance liability future cash flows at 31 Dec 2023 (1,344) (183) 1,974 2,423 3,299 11,731 23,453 67,525

108,878

Remaining contractual service margin

Life direct participating and investment DPF contracts 917 848 783 722 666 2,597 2,653 1,428 10,614

Life other contracts 172 113 84 74 61 141 115 41 801

Remaining contractual service margin at 31 Dec 2023 1,089 961 867 796 727 2,738 2,768 1,469 11,415

Insurance liability future cash flows

Life direct participating and investment DPF contracts (5,049) (1,891) 180 1,417 1,685 9,585 30,108 59,762 95,797

Life other contracts 695 770 395 (13) 38 172 182 859 3,098

Insurance liability future cash flows at 31 Dec 2022

(4,354) (1,121) 575 1,404 1,723 9,757 30,290 60,621 98,895

Remaining contractual service margin

Life direct participating and investment DPF contracts 757 689 638 590 547 2,177 2,293 1,293 8,984

Life other contracts 194 64 56 48 42 134 99 49 686

Remaining contractual service margin at 31 Dec 2022

951 753 694 638 589 2,311 2,392 1,342 9,670

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

Discount rates

The discount rates applied to expected future cash flows are determined through a bottom-up approach as set out in Note 1.2(j) ‘Summary of

material accounting policies – Insurance contracts’ on page 351. The blended average of discount rates used within our most material

manufacturing entities are as follows:

HSBC Life (International) Ltd Hang Seng Insurance Co Ltd

HSBC Assurances

Vie (France)

HK$ US$ HK$ US$ €

At 31 Dec 2023

10-year discount rate (%) 4.02 4.47 4.16 4.62 2.96

20-year discount rate (%) 4.21 4.91 4.34 5.06 2.97

At 31 Dec 2022

10-year discount rate (%) 4.56 4.59 4.70 4.80 3.66

20-year discount rate (%) 4.63 4.96 4.76 5.17 3.33

Notes on the financial statements

362 HSBC Holdings plc Annual Report and Accounts 2023

Employee compensation and benefits

2023 2022 2021

$m $m $m

Employee compensation and benefits

18,220 18,003 18,742

Capitalised wages and salaries

1,403 1,285 870

Gross employee compensation and benefits for the year ended 31 Dec 19,623 19,288 19,612

Consists of:

Wages and salaries 17,359 16,970 17,072

Social security costs 1,507 1,403 1,503

Post-employment benefits 757 915 1,037

Year ended 31 Dec 19,623 19,288 19,612

1 In 2023 and 2022, employee compensation and benefits are presented in the income statement net of software capitalisation costs and costs included

in the insurance contract fulfilment cash flow liabilities under IFRS 17. In 2021, employee compensation and benefits are presented net of software

capitalisation costs in the income statement.

2 Comprises $1,043m (2022: $922m; 2021: $870m) software capitalisation costs and $360m (2022: $363m; 2021: n/a) costs included in the insurance

contract fulfilment cash flow liabilities under IFRS 17.

Average number of persons employed by HSBC during the year by global business

2023 2022 2021

Wealth and Personal Banking 132,336 135,676 138,026

Commercial Banking 46,826 48,004 44,992

Global Banking and Markets 48,043 48,597 48,179

Corporate Centre 347 365 359

Year ended 31 Dec 227,552 232,642 231,556

1 Average number of persons employed represents the number of persons with contracts of service with the Group.

Average number of persons employed by HSBC during the year by legal entity

2023 2022 2021

HSBC UK Bank plc 20,415 20,501 21,447

HSBC Bank plc 14,809 15,405 16,823

The Hongkong and Shanghai Banking Corporation Limited 54,321 54,792 55,253

HSBC Bank Middle East Limited 3,316 3,338 3,429

HSBC North America Holdings Inc. 6,046 6,749 8,197

HSBC Bank Canada 4,354 4,241 4,369

Grupo Financiero HSBC, S.A. de C.V. 14,412 14,484 14,529

Other trading entities

9,247 10,026 10,442

Holding companies, shared service centres and intra-Group eliminations 100,632 103,106 97,067

Year ended 31 Dec 227,552 232,642 231,556

1 Average number of persons employed represents the number of persons with contracts of service with the Group.

2 Other trading entities includes entities located in Oman, Türkiye, Egypt and Saudi Arabia.

Reconciliation of total incentive awards granted to income statement charge

2023

2022 2021

$m $m $m

Total incentive awards approved for the current year 3,774 3,359 3,495

Less: deferred bonuses awarded, expected to be recognised in future periods (353) (343) (379)

Total incentives awarded and recognised in the current year 3,421 3,016 3,116

Add: current year charges for deferred bonuses from previous years 375 239 270

Other (56) (22) 4

Income statement charge for incentive awards 3,740 3,233 3,390

Share-based payments

‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $482m was equity settled (2022: $400m;

2021:$467m), as follows:

2023 2022 2021

$m $m $m

Conditional share awards 499 402 479

Savings-related and other share award option plans 23 22 27

Year ended 31 Dec 522 424 506

HSBC Holdings plc Annual Report and Accounts 2023 363

Financial statements

HSBC share awards

Award Policy

Deferred share awards

(including annual

incentive awards, long-

term incentive (‘LTI’)

awards delivered in

shares)

An assessment of performance over the relevant period ending on 31 December is used to determine the amount

ofthe award to be granted.

– Deferred awards generally require employees to remain in employment over the vesting period and are generally not

subject to performance conditions after the grant date. An exception to these are LTI awards, which are subject to

performance conditions.

– Deferred share awards generally vest over a period of three, four, five or seven years.

– Vested shares may be subject to a retention requirement post-vesting.

– Awards are generally subject to malus and clawback provisions.

International Employee

Share Purchase Plan

(‘ShareMatch’)

The plan was first introduced in Hong Kong in 2013 and now includes employees based in 30 jurisdictions.

– Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.

– Matching awards are added at a ratio of one free share for every three purchased. In mainland China, matching

awards are settled in cash.

– Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum

period of two years and nine months.

Movement on HSBC share awards

2023 2022

Number Number

(000s) (000s)

Conditional share awards outstanding at 1 Jan 126,246 109,364

Additions during the year 72,289 90,190

Released in the year (70,054) (67,718)

Forfeited in the year (3,458) (5,590)

Conditional share awards outstanding at 31 Dec 125,023 126,246

Weighted average fair value of awards granted ($) 5.84 5.60

HSBC share option plans

Main plans Policy

Savings-related share

option plans (‘Sharesave’)

– From 2014, employees eligible for the UK plan could save up to £500 per month with the option to use the savings to

acquire shares.

– These are generally exercisable within six months following either the third or fifth anniversary of the

commencement of a three-year or five-year contract, respectively.

– The exercise price is set at a 20% (2022: 20%) discount to the market value immediately preceding the date of

invitation.

Calculation of fair values

The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the

date of the grant.

Movement on HSBC share option plans

Savings-related

share option plans

Number

WAEP

(000s) £

Outstanding at 1 Jan 2023 115,651 2.89

Granted during the year

23,382 4.70

Exercised during the year

(49,007) 2.73

Expired during the year (3,832) 3.78

Forfeited during the year (2,200) 2.88

Outstanding at 31 Dec 2023 83,994 3.42

– of which exercisable 7,165 2.70

Weighted average remaining contractual life (years) 2.41

Outstanding at 1 Jan 2022 123,197 2.85

Granted during the year

8,928 4.24

Exercised during the year

(3,483) 3.49

Expired during the year (9,047) 3.55

Forfeited during the year (3,944) 2.79

Outstanding at 31 Dec 2022 115,651 2.89

– of which exercisable 4,029 4.11

Weighted average remaining contractual life (years) 2.26

1 Weighted average exercise price.

2 The weighted average fair value of options granted during the year was $1.92 (2022: $1.45).

3 The weighted average share price at the date the options were exercised was $7.39 (2022: $6.22).

Notes on the financial statements

364 HSBC Holdings plc Annual Report and Accounts 2023

Post-employment benefit plans

The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 206 contains details

of the policies and practices associated with these pension plans, some of which are defined benefit plans. The largest defined benefit plan is

the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the principal plan’), created as a result of the HSBC Bank (UK) Pension Scheme

being fully sectionalised in 2018 to meet the requirements of the Banking Reform Act. For further details of how the trustee of the HSBC Bank

(UK) Pension Scheme manages climate risk, see ’Managing climate risk’ on page 65.

HSBC holds on its balance sheet the net surplus or deficit, which is the difference between the fair value of plan assets and the discounted

value of scheme liabilities at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are recoverable through

reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a surplus is recoverable, HSBC

has considered its current right to obtain a future refund or a reduction in future contributions together with the rights of third parties such as

trustees.

The principal plan

The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future benefit

accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by

HSBC. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are

held separately from the assets of the Group.

The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also

includes some interest rate swaps to reduce interest rate risk, inflation swaps to reduce inflation risk and longevity swaps to reduce the impact

of longer life expectancy.

The principal plan is subject to the statutory funding objective requirements of the UK Pensions Act 2004, which requires that it be funded to at

least the level of technical provisions (an actuarial estimate of the assets needed to provide for the benefits already built up under the plan).

Where a funding valuation is carried out and identifies a deficit, the employer and trustee are required to agree to a deficit recovery plan.

The latest funding valuation of the plan at 31 December 2019 was carried out by Colin G Singer of Willis Towers Watson Limited, who is a

Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan’s assets

was £31.1bn ($41.1bn) and this exceeded the value placed on its liabilities on an ongoing basis by £2.5bn ($3.3bn), giving a funding level of

109%. These figures include defined contribution assets amounting to £2.4bn ($3.2bn). The main differences between the assumptions used

for assessing the defined benefit liabilities for this funding valuation and those used for IAS 19 are that an element of prudence is contained in

the funding valuation assumptions for discount rate, inflation rate and life expectancy. The funding valuation is used to judge the amount of cash

contributions the Group needs to put into the pension scheme. It will always be different to the IAS 19 accounting surplus, which is an

accounting rule concerning employee benefits and shown on the balance sheet of our financial statements. The next funding valuation, with an

effective date of 31 December 2022, is currently underway and will be concluded no later than the regulatory deadline of 31 March 2024. The

plan is estimated to remain in a comfortable surplus relative to the funding liabilities as at the end of 2022, based on assumptions consistent

with those used to determine the funding liabilities for the 2019 valuation.

The actuary also assessed the value of the liabilities if the plan were to have been stopped and an insurance company asked to secure all future

pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would

use more prudent assumption, which would allow for reserves and include an explicit allowance for the future administrative expenses ofthe

plan. Under this approach, the amount of assets needed was estimated to be £33bn ($44bn) at 31 December 2019.

The trust deed gives the ability for HSBC UK to take a refund of surplus assets after the plan has been run down such that no further

beneficiaries remain. In assessing whether a surplus is recoverable, HSBC UK has considered its right to obtain a future refund together with

the rights of third parties such as trustees. On this basis, any net surplus in the HBUK section of the plan is recognised in HSBC UK’s financial

statements and the Group’s financial statements.

Income statement charge/(credit)

2023

2022

2021

$m $m $m

Defined benefit pension plans (151) 42 243

Defined contribution pension plans 874 845 767

Pension plans 723 887 1,010

Defined benefit and contribution healthcare plans 34 28 27

Year ended 31 Dec 757 915 1,037

Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans

Fair value of

plan assets

Present value of

defined benefit obligations

Effect of limit on plan

surpluses Total

$m $m $m $m

Defined benefit pension plans 33,897 (27,011) — 6,886

Defined benefit healthcare plans 107 (403) — (296)

At 31 Dec 2023 34,004 (27,414) — 6,590

Total employee benefit liabilities (within Note 27 ‘Accruals, deferred

income and other liabilities’)

(1,160)

Total employee benefit assets (within Note 22 ‘Prepayments,

accrued income and other assets’)

7,750

Defined benefit pension plans 32,171 (25,693) — 6,478

Defined benefit healthcare plans 96 (388) — (292)

At 31 Dec 2022 32,267 (26,081) — 6,186

Total employee benefit liabilities (within Note 27 ‘Accruals, deferred

income and other liabilities’)

(1,096)

Total employee benefit assets (within Note 22 ‘Prepayments,

accrued income and other assets’)

7,282

HSBC Holdings plc Annual Report and Accounts 2023 365

Financial statements

HSBC Holdings

Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2023 amounted to $15m (2022: $41m). The average

number of persons employed during 2023 was 29 (2022: 42). A small number of employees are members of defined benefit pension plans.

These employees are members of the HSBC Bank (UK) Pension Scheme. HSBC Holdings pays contributions to such plan for its own employees

in accordance with the schedules of contributions determined by the trustees of the plan and recognises these contributions as an expense as

they fall due.

Defined benefit pension plans

Net asset/(liability) under defined benefit pension plans

Fair value of plan

assets

Present value of

defined benefit

obligations

Effect of the asset

ceiling

Net defined benefit

asset/(liability)

Principal

plan

Other

plans

Principal

plan

Other

plans

Principal

plan

Other

plans

Principal

plan

Other

plans

$m $m $m $m $m $m $m $m

At 1 Jan 2023 25,121 7,050 (18,787) (6,906) — — 6,334 144

Service cost — — (10) (150) — — (10) (150)

– current service cost — — (14) (135) — — (14) (135)

– past service cost and gains/(losses) fromsettlements — 4 (15) — — 4 (15)

Net interest income/(cost) on the net defined benefit asset/

(liability)

1,247 298 (925) (286) — — 322 12

Remeasurement effects recognised in other

comprehensive income

(225) 110 7 (300) — — (218) (190)

– return on plan assets (excluding interest income) (225) 110 — — — — (225) 110

– actuarial gains/(losses) financial assumptions — — (123) (327) — — (123) (327)

– actuarial gains/(losses) demographic assumptions

— —

357 17 — — 357 17

– actuarial gains/(losses) experience adjustments

— —

(227) 10 — — (227) 10

– other changes — — — — — — — —

Exchange differences 1,472 228 (1,098) (190) — — 374 38

Benefits paid (1,063) (548) 1,063 629 — — — 81

Other movements

38 169 (32) (26) — — 6 143

At 31 Dec 2023 26,590 7,307 (19,782) (7,229) — — 6,808 78

At 1 Jan 2022 41,384 10,047 (32,255) (10,022) — (23) 9,129 2

Service cost — — (30) (170) — — (30) (170)

– current service cost — — (12) (161) — — (12) (161)

– past service cost and losses fromsettlements — — (18) (9) — — (18) (9)

Net interest income/(cost) on the net defined benefit asset/

(liability)

703 198 (546) (202) — (1) 157 (5)

Remeasurement effects recognised in other

comprehensive income

(11,505) (2,181) 9,532 2,360 — (3) (1,973) 176

– return on plan assets (excluding interest income) (11,505) (2,181) — — — — (11,505) (2,181)

– actuarial gains/(losses) financial assumptions — — 10,543 2,383 — — 10,543 2,383

– actuarial gains/(losses) demographic assumptions — — (123) 24 — — (123) 24

– actuarial gains/(losses) experience adjustments — — (888) (47) — — (888) (47)

– other changes — — — — — (3) — (3)

Exchange differences (4,288) (180) 3,325 35 — 2 (963) (143)

Benefits paid (1,222) (616) 1,222 686 — — — 70

Other movements

49 (218) (35) 407 — 25 14 214

At 31 Dec 2022 25,121 7,050 (18,787) (6,906) — — 6,334 144

1 For further details of the principal plan, see page 365.

2 Other movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.

HSBC expects to make $113m of contributions to defined benefit pension plans during 2024, consisting of $nil for the principal plan and $113m

for other plans. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years

thereafter, are as follows:

Benefits expected to be paid from plans

2024 2025 2026 2027 2028 2029-2033

$m $m $m $m $m $m

The principal plan

1,2

1,125 1,160 1,196 1,234 1,273 6,988

Other plans

465 473 456 478 476 2,403

1 The duration of the defined benefit obligation is 12.9 years for the principal plan under the disclosure assumptions adopted (2022: 13.2 years) and 10.3

years for all other plans combined (2022: 10.2 years).

2 For further details of the principal plan, see page 365.

Notes on the financial statements

366 HSBC Holdings plc Annual Report and Accounts 2023

Fair value of plan assets by asset classes

31 Dec 2023 31 Dec 2022

Value

Quoted

market price

in active

market

No quoted

market price

in active

market

Thereof

HSBC

Value

Quoted

market price

in active

market

No quoted

market price

in active

market

Thereof

HSBC

$m $m $m $m $m $m $m $m

The principal plan

Fair value of plan assets 26,590 15,006 11,584 547 25,121 13,915 11,206 510

– equities

83 — 83 — 112 — 112 —

– bonds fixed income 5,262 4,739 523 — 5,285 4,822 463 —

– bonds index-linked 10,300 10,300 — — 9,479 9,479 — —

– derivatives 1,061 — 1,061 547 1,203 — 1,203 510

– property 830

— 830 —

842 — 842 —

– pooled investment vehicles 9,087 — 9,087 — 8,586 — 8,586 —

– other (33) (33) — — (386) (386) — —

Other plans

Fair value of plan assets 7,307 5,361 1,946 39 7,050 5,848 1,202 37

– equities 556 556 — 3 639 486 153 2

– bonds fixed income 3,624 3,623 1 5 3,571 3,472 99 4

– bonds index-linked 90 90 — — 58 58 — —

– bonds other 447 415 32 — 1,357 1,007 350 —

– derivatives 2 (1) 3 — 4 (1) 5 —

– property 112 108 4 — 109 104 5 —

– other 2,476 570 1,906 31 1,312 722 590 31

1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 37.

2 For further details of the principal plan, see page 365.

3 Includes $83m (2022: $112m) in relation to private equities.

Post-employment defined benefit plans’ principal actuarial financial assumptions

HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current

average yields of high-quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.

Key actuarial assumptions for the principal plan

Discount rate Inflation rate (RPI) Inflation rate (CPI) Rate of increase for pensions Rate of pay increase

% % % % %

At 31 Dec 2023 4.65 3.23 2.67 3.14 3.42

At 31 Dec 2022 4.93 3.39 2.84 3.27 3.34

1 For further details of the principal plan, see page 365.

Mortality tables and average life expectancy at age 60

for the principal plan

Mortality

table

Life expectancy at age 60 for

a male member currently:

Life expectancy at age 60 for

a female member currently:

Aged 60 Aged 40 Aged 60 Aged 40

At 31 Dec 2023 SAPS S3

26.2 27.7 28.3 29.8

At 31 Dec 2022 SAPS S3 27.1 28.6 28.4 29.9

1 For further details of the principal plan, see page 365.

2 Self-administered pension scheme (‘SAPS’) S3 table, with different tables and multipliers adopted based on gender, pension amount and member

status, reflecting the Scheme’s actual mortality experience. Improvements are projected in accordance with the Continuous Mortality Investigation’s

CMI 2022 core projection model with an initial addition to improvement of 0.25% per annum, a long-term rate of improvement of 1.25% per annum, a

0% weighting to 2020 and 2021 mortality experience, and a 25% weighting to 2022 mortality experience reflecting updated long-term view on

mortality improvements post-pandemic.

The effect of changes in key assumptions on the principal plan

Impact on HBUK section of the

HSBC Bank (UK) Pension Scheme obligation

Financial impact of increase Financial impact of decrease

2023

2022

2023

2022

$m $m $m $m

Discount rate – increase/decrease of 0.25% (599) (582) 631 612

Inflation rate (RPI and CPI) – increase/decrease of 0.25% 500 466 (497) (446)

Pension payments and deferred pensions – increase/decrease of 0.25% 622 551 (590) (519)

Pay – increase/decrease of 0.25% 8 10 (6) (10)

Change in mortality – increase/decrease of 1 year 613 470 (613) (489)

1 For further details of the principal plan, see page 365.

2 Sensitivities allow for HSBC UK’s convention of rounding pension assumptions during 2023 to the nearest 0.01% (2022: 0.01%).

HSBC Holdings plc Annual Report and Accounts 2023 367

Financial statements

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely

to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to

significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit

method at the end of the reporting period) has been applied as when calculating the defined benefit asset recognised in the balance sheet. The

methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the prior period.

Directors’ emoluments

Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 279.

Auditor’s remuneration

2023

2022

2021

$m $m $m

Audit fees payable to PwC

109.8 97.6 88.1

Other audit fees payable 2.2 1.6 2.0

Year ended 31 Dec 112.0 99.2 90.1

Fees payable by HSBC to PwC

2023 2022 2021

$m $m $m

Fees for HSBC Holdings’ statutory audit

24.1 21.9 19.5

Fees for other services provided to HSBC 131.8 126.2 109.9

– audit of HSBC’s subsidiaries 85.7 75.7 68.6

– audit-related assurance services

26.0 26.4 18.7

– other assurance services

4,5

20.1 24.1 22.6

Year ended 31 Dec 155.9 148.1 129.4

1 Audit fees payable to PwC in 2023 included adjustments made to the prior year audit fee after finalisation of the 2022 financial statements.

2 Fees payable to PwC for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC

Holdings. They include amounts payable for services relating to the consolidation returns of HSBC Holdings’ subsidiaries, which are clearly identifiable

as being in support of the Group audit opinion.

3 Including services for assurance and other services that relate to statutory and regulatory filings, including interim reviews.

4 Including permitted services relating to attestation reports on internal controls of a service organisation primarily prepared for and used by third-party

end users, including comfort letters.

5 Includes reviews of PRA regulatory reporting returns.

No fees were payable by HSBC to PwC as principal auditor for the following types of services: internal audit services and services related to

litigation, recruitment and remuneration.

Fees payable by HSBC’s associated pension schemes to PwC

2023 2022 2021

$000 $000 $000

Audit of HSBC’s associated pension schemes 297 480 382

Year ended 31 Dec 297 480 382

No fees were payable by HSBC’s associated pension schemes to PwC as principal auditor for the following types of services: internal audit

services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation, recruitment and

remuneration, and information technology.

In addition to the above, the estimated fees paid to PwC by third parties associated with HSBC amounted to $12.3m (2022: $13.1m;

2021:$6.3m). In these cases, HSBC was connected with the contracting party and may therefore have been involved in appointing PwC. These

fees arose from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate concerns that

borrow from HSBC.

Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated basis for

the Group.

Tax

Tax expense

2023 2022 2021

$m $m $m

Current tax

5,718 2,984 3,250

– for this year 5,737 3,264 3,182

– adjustments in respect of prior years (19) (280) 68

Deferred tax 71 (2,175) 963

– origination and reversal of temporary differences 19 (2,278) 874

– effect of changes in tax rates 17 (293) 132

– adjustments in respect of prior years 35 396 (43)

Year ended 31 Dec

5,789 809 4,213

1 Current tax included Hong Kong profits tax of $1,328m (2022: $604m; 2021: $813m). The Hong Kong tax rate applying to the profits of subsidiaries

assessable in Hong Kong was 16.5% (2022: 16.5%; 2021: 16.5%).

2 In addition to amounts recorded in the income statement, a tax credit of $41m (2022: credit of $145m) was recorded directly to equity.

Notes on the financial statements

368 HSBC Holdings plc Annual Report and Accounts 2023

Tax reconciliation

The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate

as follows:

2023 2022 2021

$m % $m % $m %

Profit before tax 30,348 17,058 18,906

Tax expense

Taxation at UK corporation tax rate of 23.5% (2022: 19.0%, 2021: 19.0%) 7,132 23.5 3,241 19.0 3,592 19.0

Impact of differently taxed overseas profits in overseas locations (612) (2.0) 459 2.7 280 1.5

UK banking surcharge 350 1.2 283 1.7 332 1.8

Items increasing tax charge in 2023:

– impairment of interest in associate 705 2.3 — — — —

– local taxes and overseas withholding taxes 419 1.4 346 2.0 360 1.9

– impacts of hyperinflation 348 1.1 171 1.0 68 0.4

– other permanent disallowables 227 0.7 363 2.1 414 2.2

– bank levy 112 0.4 59 0.3 93 0.5

– impact of changes in tax rates 17 0.1 (293) (1.7) 132 0.7

– adjustments in respect of prior period 16 0.1 116 0.7 25 0.1

– tax impact of sale of French retail banking business — — 115 0.7 (434) (2.3)

– impact of differences between French tax basis and IFRSs — — — — 434 2.3

Items reducing tax charge in 2023:

– non-taxable income and gains (1,189) (3.9) (825) (4.8) (641) (3.4)

– effect of profits in associates and joint ventures (571) (1.9) (504) (3.1) (414) (2.2)

– movements in provisions for uncertain tax positions (472) (1.6) 27 0.2 15 0.1

– accounting gain on acquisition of SVB UK (442) (1.5) — — — —

– deductions for AT1 coupon payments (229) (0.7) (246) (1.4) (270) (1.4)

– movements in unrecognised deferred tax (22) (0.1) (2,503) (14.7) 227 1.1

Year ended 31 December 5,789 19.1 809 4.7 4,213 22.3

The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable tax rates for

2023 include Hong Kong (16.5%), the US (21%) and the UK (23.5%). If the Group’s profits were taxed at the statutory rates of the countries in

which the profits arose, then the tax rate for the year would have been 22.6% (2022: 23.3%).

The effective tax rate for the year of 19.1% was higher than in the previous year (2022: 4.7%). The effective tax rate for the year was increased

by 2.3% by the non-taxable impairment of the Group’s interest in BoCom, reduced by 1.6% by the release of provisions for uncertain tax

positions and reduced by 1.5% by the non-taxable accounting gain on the acquisition of SVB UK. The effective tax rate for 2022 was reduced by

14.7% as a result of the recognition of previously unrecognised losses in the UK of $2.2bn and France of $0.3bn, in light of improved forecast

profitability.

On 20 June 2023, legislation was substantively enacted in the UK to introduce the ‘Pillar Two’ global minimum tax model rules of the OECD’s

Inclusive Framework on Base Erosion and Profit Shifting (’BEPS’) and a UK qualified domestic minimum top-up tax, with effect from 1 January

2024. Under these rules, a top-up tax liability arises where the effective tax rate of the Group’s operations in a jurisdiction, calculated using

principles set out in the Pillar Two legislation, is below 15%. Any resulting tax is payable by HSBC Holdings plc, being the Group’s ultimate

parent, to HMRC. In response to the OECD’s Pillar Two global minimum tax rules, many national governments have announced their intention

to introduce domestic minimum tax rules that are closely aligned to the OECD’s Pillar Two model rules. Where such qualifying domestic

minimum tax rules are introduced, they may be expected to have the effect of increasing local tax liabilities to the 15% minimum rate,

eliminating the top-up tax liability payable in the UK by HSBC Holdings plc in such cases. Based on the Group’s forecasts, top-up tax liabilities

are expected to arise in approximately 10 jurisdictions as a result of low or 0% statutory tax rates, in particular in respect of the Group’s banking

operations in Bermuda and the Channel Islands. Additionally, the application of local tax laws in Hong Kong and mainland China, particularly with

regard to the non-taxation of dividend income and income on government bonds, has typically resulted in effective tax rates of below 15%. This

is expected to create future top-up tax liabilities in these jurisdictions, which have statutory tax rates of 16.5% and 25%, respectively. The

application of the Pillar Two global minimum tax rules and the introduction of new domestic minimum tax regimes are currently forecast to

increase the Group’s annual effective tax rate by around 0.5 and 1.0 percentage points.

Accounting for taxes involves some estimation because tax law is uncertain and its application requires a degree of judgement, which

authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where

appropriate. Exposures relating to legacy tax cases were reassessed during 2023, resulting in a credit of $472m to the income statement. We

do not expect significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where

recovery is probable.

HSBC Holdings plc Annual Report and Accounts 2023 369

Financial statements

Movement of deferred tax assets and liabilities

Loan

impairment

provisions

Unused tax

losses and

tax credits

Financial

assets at

FVOCI

Cash flow

hedges

Retirement

obligations Other Total

$m $m $m $m $m $m $m

Assets 1,062 4,397 850 1,271 — 3,048 10,628

Liabilities — — — — (1,673) (1,567) (3,240)

At 1 Jan 2023 1,062 4,397 850 1,271 (1,673) 1,481 7,388

Income statement (39) 102 541 1 (114) (562) (71)

Other comprehensive income — — (598) (974) 99 399 (1,074)

Foreign exchange and other adjustments 135 45 83 121 (126) 15 273

At 31 Dec 2023 1,158 4,544 876 419 (1,814) 1,333 6,516

Assets

1,158 4,544 876 419 — 2,933 9,930

Liabilities

— — — — (1,814) (1,600) (3,414)

Assets

1,151 2,001 382 154 — 1,744 5,432

Liabilities

— — — — (2,819) (475) (3,294)

At 1 Jan 2022 1,151 2,001 382 154 (2,819) 1,269 2,138

Income statement 7 2,425 (1,127) 1 217 652 2,175

Other comprehensive income — — 2,281 1,159 692 (1,260) 2,872

Foreign exchange and other adjustments (96) (29) (686) (43) 237 820 203

At 31 Dec 2022 1,062 4,397 850 1,271 (1,673) 1,481 7,388

Assets

1,062 4,397 850 1,271 — 3,048 10,628

Liabilities

— — — — (1,673) (1,567) (3,240)

1 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets of $7,754m (2022: $8,360m)

and deferred tax liabilities of $1,238m (2022: $972m).

2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

In applying judgement in recognising deferred tax assets, management has assessed all relevant information, including future business profit

projections and the track record of meeting forecasts. Management’s assessment of the likely availability of future taxable profits against which

to recover deferred tax assets is based on the most recent financial forecasts approved by management, which cover a five-year period and are

extrapolated where necessary, and takes into consideration the reversal of existing taxable temporary differences and past business

performance. When forecasts are extrapolated beyond five years, a number of different scenarios are considered, reflecting different downward

risk adjustments, in order to assess the sensitivity of our recognition and measurement conclusions in the context of such longer-term

forecasts.

The Group’s net deferred tax asset of $6.5bn (2022: $7.4bn) included $3.3bn (2022: $4.0bn) of deferred tax assets relating to the UK, $3.1bn

(2022: $3.3bn) of deferred tax assets relating to the US and a net deferred asset of $0.9bn (2022: $1.0bn) in France.

The UK deferred tax asset of $3.3bn excluded a $1.9bn deferred tax liability arising on the UK pension scheme surplus, the reversal of which is

not taken into account when estimating future taxable profits. The UK deferred tax assets are supported by forecasts of taxable profit, also

taking into consideration the history of profitability in the relevant businesses. The majority of the deferred tax asset relates to tax attributes

which do not expire and are forecast to be recovered within four years and as such are less sensitive to changes in long-term profit forecasts.

The net US deferred tax asset of $3.1bn included $1.3bn related to US tax losses, of which $1.0bn expire in 10 to 15 years. Management

expects the US deferred tax asset to be substantially recovered within 14 years, with the majority recovered in the first nine years.

The net deferred tax asset in France of $0.9bn included $0.7bn related to tax losses, which are expected to be substantially recovered within 12

years.

Unrecognised deferred tax

The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance

sheet was $10.4bn (2022: $9.2bn). This amount included unused US state tax losses of $4.0bn (2022: $4.1bn) which are forecast to expire

before they are recovered and unused UK tax losses of $4.5bn (2022: $3.5bn), which arose prior to 1 April 2017 and can only be recovered

against future taxable profits of HSBC Holdings. No deferred tax was recognised on these losses due to the absence of convincing evidence

regarding the availability of sufficient future taxable profits against which to recover them. Deferred tax asset recognition is reassessed at each

balance sheet date based on the available evidence. Of the total amounts unrecognised, $5.1bn (2022: $3.6bn) had no expiry date, $0.5bn

(2022: $1.2bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 years.

Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control the timing of

remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary

differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches was $14.4bn (2022: $11.7bn) and

the corresponding unrecognised deferred tax liability was $0.7bn (2022: $0.7bn).

Notes on the financial statements

370 HSBC Holdings plc Annual Report and Accounts 2023

Dividends

Dividends to shareholders of the parent company

2023 2022 2021

Per

Total

Per

Total

Per

Total

$ $m $ $m $ $m

Dividends paid on ordinary shares

In respect of previous year:

– second interim dividend 0.23 4,589 0.18 3,576 0.15 3,059

In respect of current year:

– first interim dividend 0.10 2,001 0.09 1,754 0.07 1,421

– second interim dividend 0.10 1,956 — — — —

– third interim dividend 0.10 1,946 — — — —

Total 0.53 10,492 0.27 5,330 0.22 4,480

Total dividends on preference shares classified as equity (paid quarterly)

— — — — 4.99 7

Total coupons on capital securities classified as equity 1,101 1,214 1,303

Dividends to shareholders 11,593 6,544 5,790

1 HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares on 10 December 2020. The security was redeemed and cancelled

on 13 January 2021.

Total coupons on capital securities classified as equity

2023 2022 2021

Total

First call date Per security $m $m $m

Perpetual subordinated contingent convertible securities

$2,000m issued at 6.875%

Jun 2021 $68.750 — — 69

$2,250m issued at 6.375% Sep 2024 $63.750 143 143 143

$2,450m issued at 6.375% Mar 2025 $63.750 156 156 156

$3,000m issued at 6.000% May 2027 $60.000 180 180 180

$2,350m issued at 6.250%

Mar 2023 $62.500 52 147 147

$1,800m issued at 6.500% Mar 2028 $65.000 117 117 117

$1,500m issued at 4.600% Dec 2030 $46.000 69 69 69

$1,000m issued at 4.000%

Mar 2026 $40.000 40 40 20

$1,000m issued at 4.700%

Mar 2031 $47.000 47 47 24

$2,000m issued at 8.000%

Mar 2028 $80.000 80 — —

€1,500m issued at 5.250%

Sep 2022 €52.500 — 76 93

€1,000m issued at 6.000%

Sep 2023 €60.000 56 63 70

€1,250m issued at 4.750% Jul 2029 €47.500 64 65 72

£1,000m issued at 5.875% Sep 2026 £58.750 72 70 80

SGD1,000m issued at 4.700%

Jun 2022 SGD47.000 — 14 35

SGD750m issued at 5.000%

Sep 2023 SGD50.000 25 27 28

Total 1,101 1,214 1,303

1 Discretionary coupons are paid semi-annually, based on the denominations of each security.

2 This security was called by HSBC Holdings on 15 April 2021 and was redeemed and cancelled on 1 June 2021.

3 This security was called by HSBC Holdings on 30 January 2023 and was redeemed and cancelled on 23 March 2023.

4 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six calendar months prior to the reset date of

9September 2026.

5 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six calendar months prior to the reset date of

9September 2031.

6 This security was issued by HSBC Holdings on 7 March 2023. The first call period commences six calendar months prior to the reset date of

7September 2028.

7 This security was called by HSBC Holdings on 9 August 2022 and was redeemed and cancelled on 16 September 2022.

8 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 29 September 2023.

9 This security was called by HSBC Holdings on 4 May 2022 and was redeemed and cancelled on 8 June 2022.

10 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 25 September 2023.

On 21 February 2024, the Directors approved a fourth interim dividend in respect of the financial year ended 31 December 2023 of $0.31 per

ordinary share, a distribution of approximately $5,913m. The fourth interim dividend for 2023 will be payable on 25 April 2024 to holders on the

Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 8March2024. No liability

was recorded in the financial statements in respect of the fourth interim dividend for 2023.

On 4 January 2024, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m ($33m).No

liability was recorded in the balance sheet at 31 December 2023 in respect of this coupon payment.

HSBC Holdings plc Annual Report and Accounts 2023 371

Financial statements

Earnings per share

Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted

average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the

basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary

shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of

dilutive potential ordinary shares.

Basic and diluted earnings per share

2023 2022¹ 2021

Profit

Number

of shares

Per

Profit

Number

of shares

Per

share Profit

Number

of shares

Per

$m (millions) $ $m (millions) $ $m (millions) $

Basic

22,432 19,478 1.15 14,346 19,849 0.72 12,607 20,197 0.62

Effect of dilutive potential

ordinary shares

122 137 105

Diluted

22,432 19,600 1.14 14,346 19,986 0.72 12,607 20,302 0.62

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

The number of anti-dilutive employee share options excluded from the weighted average number of dilutive potential ordinary shares was

23 million (2022: 9.4million; 2021: 8.6 million).

Segmental analysis

The Group Chief Executive, supported by the rest of the Group Executive Committee (‘GEC’), is considered the Chief Operating Decision Maker

(‘CODM’) for the purposes of identifying the Group’s reportable segments. Global business results are assessed by the CODM on the basis of

constant currency performance that removes the effects of currency translation from reported results. Therefore, we disclose these results on a

constant currency basis as required by IFRS Accounting Standards. The 2022 and 2021 income statements are converted at the average rates of

exchange for 2023, and the balance sheets at 31 December 2022 and 31 December 2021 at the prevailing rates of exchange on 31 December

2023.

Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations 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 global businesses. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree

of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-

business line transactions. All such transactions are undertaken on arm’s length terms. Measurement of segmental assets, liabilities, income

and expenses is in accordance with the Group’s accounting policies. Shared costs are included in segments on the basis of actual recharges.

The intra-Group elimination items for the global businesses are presented in Corporate Centre.

Resegmentation

In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective

needs, a portfolio of our Global Banking customers within our entities in Latin America was transferred from Global Banking and Markets to

Commercial Banking for reporting purposes. Comparative data have been re-presented accordingly. Similar smaller transfers from Global

Banking and Markets to Commercial Banking were also undertaken within our entities in Australia and Indonesia, where comparative data have

not been re-presented.

Our global businesses

We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The products and

services offered to customers are organised by these global businesses.

– Wealth and Personal Banking (‘WPB’) provides a full range of retail banking and wealth products to our customers from personal banking to

ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings accounts,

mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide wealth management

services, including insurance and investment products, global asset management services, investment management and private wealth

solutions for customers with more sophisticated and international requirements.

– Commercial Banking (‘CMB’) offers a broad range of products and services to serve the needs of our commercial customers, including small

and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables

finance, treasury management and liquidity solutions (payments and cash management and commercial cards), commercial insurance and

investments. CMB also offers customers access to products and services offered by other global businesses, such as Global Banking and

Markets, which include foreign exchange products, raising capital on debt and equity markets and advisory services.

– Global Banking and Markets (‘GBM’) provides tailored financial solutions to major government, corporate and institutional clients and private

investors worldwide. The client-focused business lines deliver a full range of banking capabilities, including financing, advisory and

transaction services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and securities

services, and principal investment activities.

Notes on the financial statements

372 HSBC Holdings plc Annual Report and Accounts 2023

HSBC constant currency profit before tax and balance sheet data

2023

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

$m $m $m $m $m

Net operating income/(expense) before change in expected credit losses

and other credit impairment charges

27,275 22,867 16,115 (199) 66,058

– external 19,107 24,209 28,021 (5,279) 66,058

– inter-segment 8,168 (1,342) (11,906) 5,080 —

– of which: net interest income/(expense)

20,492 17,147 7,141 (8,984) 35,796

Change in expected credit losses and other credit impairment charges (1,058) (2,062) (326) (1) (3,447)

Net operating income/(expense) 26,217 20,805 15,789 (200) 62,611

Total operating expenses (14,738) (7,524) (9,865) 57 (32,070)

Operating profit/(loss) 11,479 13,281 5,924 (143) 30,541

Share of profit/(loss) in associates and joint ventures less impairment

65 (1) — (257) (193)

Constant currency profit before tax 11,544 13,280 5,924 (400) 30,348

Share of HSBC’s constant currency profit before tax 38.0 43.8 19.5 (1.3) 100.0

Constant currency cost efficiency ratio 54.0 32.9 61.2 28.6 48.5

Constant currency balance sheet data

Loans and advances to customers (net) 454,878 309,422 173,966 269 938,535

Interests in associates and joint ventures 551 28 111 26,654 27,344

Total external assets 937,079 632,406 1,331,395 137,797 3,038,677

Customer accounts 804,863 475,666 330,522 596 1,611,647

2022¹

Net operating income/(expense) before change in expected credit losses and

other credit impairment charges

20,884 16,283 14,602 (1,898) 49,871

– external 18,299 16,973 18,744 (4,145) 49,871

– inter-segment 2,585 (690) (4,142) 2,247 —

– of which: net interest income/(expense)

15,971 11,763 4,696 (2,668) 29,762

Change in expected credit losses and other credit impairment charges (1,186) (1,862) (573) (9) (3,630)

Net operating income/(expense) 19,698 14,421 14,029 (1,907) 46,241

Total operating expenses (14,248) (6,894) (9,338) (1,822) (32,302)

Operating profit/(loss) 5,450 7,527 4,691 (3,729) 13,939

Share of profit/(loss) in associates and joint ventures 30 — (2) 2,574 2,602

Constant currency profit/(loss) before tax 5,480 7,527 4,689 (1,155) 16,541

Share of HSBC’s constant currency profit before tax 33.1 45.6 28.3 (7.0) 100.0

Constant currency cost efficiency ratio 68.2 42.3 64.0 (96.0) 64.8

Constant currency balance sheet data

Loans and advances to customers (net) 434,122 316,863 190,202 361 941,548

Interests in associates and joint ventures 514 33 93 28,143 28,783

Total external assets 893,867 620,193 1,341,575 152,049 3,007,684

Customer accounts 793,310 472,424 332,303 458 1,598,495

HSBC Holdings plc Annual Report and Accounts 2023 373

Financial statements

HSBC constant currency profit before tax and balance sheet data (continued)

2021

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

$m $m $m $m $m

Net operating income/(expense) before change in expected credit losses and

other credit impairment charges

20,972 12,699 13,086 (678) 46,079

– external 20,787 12,685 14,533 (1,926) 46,079

– inter-segment 185 14 (1,447) 1,248 —

– of which: net interest income/(expense)

13,445 8,467 3,419 (714) 24,617

Change in expected credit losses and other credit impairment charges 195 339 221 3 758

Net operating income/(expense) 21,167 13,038 13,307 (675) 46,837

Total operating expenses (15,338) (6,691) (9,255) (960) (32,244)

Operating profit/(loss) 5,829 6,347 4,052 (1,635) 14,593

Share of profit in associates and joint ventures 36 1 — 2,770 2,807

Constant currency profit/(loss) before tax 5,865 6,348 4,052 1,135 17,400

Share of HSBC’s constant currency profit before tax 33.7 36.5 23.3 6.5 100.0

Constant currency cost efficiency ratio 73.1 52.7 70.7 (141.6) 70.0

Constant currency balance sheet data

Loans and advances to customers (net) 473,304 340,603 196,193 712 1,010,812

Interests in associates and joint ventures 493 31 101 27,036 27,661

Total external assets 905,024 605,696 1,171,909 178,074 2,860,703

Customer accounts 834,767 495,492 322,306 622 1,653,187

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

3 In the first quarter of 2023, following an internal review to assess which global businesses were best suited to serve our customers’ respective

needs, a portfolio of our customers within our entities in Latin America was transferred from GBM to CMB for reporting purposes. Comparative data

have been re-presented accordingly.

4 Net interest expense recognised in Corporate Centre includes $8.7bn (2022: $2.5bn; 2021: undisclosed) of interest expense in relation to the internal

cost to fund trading and fair value net assets; and the funding cost of foreign exchange swaps in our Markets Treasury function. In the second quarter

of 2023, we implemented a consistent reporting approach across the most material entities that contribute to our trading and fair value net assets,

which resulted in an increase to the associated funding costs reported through the intersegment elimination in Corporate Centre.

5 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.

Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for

reporting the results or advancing the funds:

2023 2022¹ 2021

$m $m $m

Reported external net operating income/(expense) by country/territory

66,058 50,620 49,552

– UK 11,027 11,710 10,909

– Hong Kong 20,185 15,454 14,245

– US 3,816 3,893 3,795

– France 4,208 (177) 2,179

– other countries/territories 26,822 19,740 18,424

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Constant currency results reconciliation

2023 2022¹ 2021

Reported

and

constant

currency

Constant

currency

Currency

translation Reported

Constant

currency

Currency

translation Reported

$m $m $m $m $m $m $m

Revenue

66,058 49,871 (749) 50,620 46,079 (3,473) 49,552

ECL (3,447) (3,630) (46) (3,584) 758 (170) 928

Operating expenses (32,070) (32,302) 399 (32,701) (32,244) 2,376 (34,620)

Share of profit in associates and joint ventures

less impairment

(193) 2,602 (121) 2,723 2,807 (239) 3,046

Profit before tax 30,348 16,541 (517) 17,058 17,400 (1,506) 18,906

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

3 Includes an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.

Notes on the financial statements

374 HSBC Holdings plc Annual Report and Accounts 2023

Constant currency balance sheet reconciliation

2023 2022¹ 2021

Reported and

constant

currency

Constant

currency

Currency

translation Reported

Constant

currency

Currency

translation Reported

$m $m $m $m $m $m $m

Loans and advances to customers (net) 938,535 941,548 (17,987) 923,561 1,010,812 35,002 1,045,814

Interests in associates and joint ventures 27,344 28,783 471 29,254 27,661 1,948 29,609

Total external assets 3,038,677 3,007,684 (58,398) 2,949,286 2,860,703 97,236 2,957,939

Customer accounts 1,611,647 1,598,495 (28,192) 1,570,303 1,653,187 57,387 1,710,574

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

Notable items

2023 2022 2021

$m $m $m

Year ended 31 Dec

Notable items

Revenue

Disposals, acquisitions and related costs

1,2

1,298 (2,737) —

Fair value movements on financial instruments

14 (618) (221)

Restructuring and other related costs — (247) (307)

Disposal losses on Markets Treasury repositioning (977) — —

Operating expenses

Disposals, acquisitions and related costs (321) (18) —

Impairment of non-financial items — — (587)

Restructuring and other related costs

136 (2,882) (1,836)

Impairment of interests in associates

(3,000) — —

1 Includes the impact of the sale of our retail banking operations in France.

2 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK.

3 Fair value movements on non-qualifying hedges in HSBC Holdings.

4 Amounts in 2023 relate to reversals of restructuring provisions recognised during 2022.

5 Relates to an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391.

Trading assets

2023 2022

$m $m

Treasury and other eligible bills 24,433 22,897

Debt securities 106,108 78,126

Equity securities 123,663 88,026

Trading securities 254,204 189,049

Loans and advances to banks

9,761 8,769

Loans and advances to customers

25,194 20,275

Year ended 31 Dec 289,159 218,093

1 Loans and advances to banks and customers include reverse repos, stock borrowing and other accounts.

Fair values of financial instruments carried at fair value

Control framework

Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the

risk taker.

Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price

determination or validation is used. For inactive markets, HSBC sources alternative market information, with greater weight given to information

that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument comparability,

consistency of data sources, underlying data accuracy and timing of prices.

For fair values determined using valuation models, the control framework includes development or validation by independent support functions

of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before becoming

operational and are calibrated against external market data on an ongoing basis.

Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories including

portfolio changes, market movements and other fair value adjustments.

The majority of financial instruments measured at fair value are in GBM. GBM’s fair value governance structure comprises its Finance function,

Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing valuation and

ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation Committees, which consist of

independent support functions. These committees are overseen by the Valuation Committee Review Group, which considers all material

subjective valuations.

HSBC Holdings plc Annual Report and Accounts 2023 375

Financial statements

Financial liabilities measured at fair value

In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific

instrument. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are

either based on quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active market for

similar instruments. In both cases, the fair value includes the effect of applying the credit spread that is appropriate to HSBC’s liabilities. The

change in fair value of issued debt securities attributable to the Group’s own credit spread is computed as follows: for each security at each

reporting date, an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then,

using discounted cash flow, each security is valued using an appropriate market discount curve. The difference in the valuations is attributable to

the Group’s own credit spread. This methodology is applied consistently across all securities.

Structured notes issued and certain other hybrid instruments are reported as financial liabilities designated at fair value. Thecredit spread

applied to these instruments is derived from the spreads at which HSBC issues structured notes.

Gains and losses arising from changes in the credit spread of liabilities issued by HSBC, recorded in other comprehensive income, reverse over

the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.

Fair value hierarchy

Fair values of financial assets and liabilities are determined according to the following hierarchy:

– Level 1 – valuation technique using quoted market price. These are financial instruments with quoted prices for identical instruments in

active markets that HSBC can access at the measurement date.

– Level 2 – valuation technique using observable inputs. These are financial instruments with quoted prices for similar instruments in active

markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all

significant inputs are observable.

– Level 3 – valuation technique with significant unobservable inputs. These are financial instruments valued using valuation techniques where

one or more significant inputs are unobservable.

Financial instruments carried at fair value and bases of valuation

2023 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

$m $m $m $m $m $m $m $m

Recurring fair value measurements at 31 Dec

Assets

Trading assets 202,020 82,833 4,306 289,159 148,592 64,684 4,817 218,093

Financial assets designated and otherwise mandatorily

measured at fair value through profit or loss

27,030 63,825 19,788 110,643 23,146 59,548 17,407 100,101

Derivatives 931 226,714 2,069 229,714 2,917 279,278 1,964 284,159

Financial investments 215,228 76,591 2,618 294,437 181,659 71,040 2,961 255,660

Liabilities

Trading liabilities 53,354 19,318 478 73,150 44,787 27,092 474 72,353

Financial liabilities designated at fair value 1,266 129,232 10,928 141,426 1,125 115,764 10,432 127,321

Derivatives 1,918 230,285 2,569 234,772 2,399 280,443 2,920 285,762

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

The table below provides the fair value levelling of assets held for sale and liabilities of disposal groups that have been classified as held for sale

in accordance with IFRS 5. For further details, see Note 23.

Financial instruments carried at fair value and bases of valuation – assets and liabilities held for sale

2023 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

$m $m $m $m $m $m $m $m

Recurring fair value measurements at 31 Dec

Assets

Trading assets 2,403 61 — 2,465 2,932 244 — 3,176

Financial assets designated and otherwise mandatorily

measured at fair value through profit or loss

— 15 49 64 — 14 47 61

Derivatives — 528 — 528 — 866 — 866

Financial investments 9,357 — 28 9,385 11,184 — — 11,184

Liabilities

Trading liabilities 1,352 64 — 1,417 2,572 182 — 2,754

Financial liabilities designated at fair value — 2,370 — 2,370 — 3,523 — 3,523

Derivatives — 615 — 615 — 813 — 813

Notes on the financial statements

376 HSBC Holdings plc Annual Report and Accounts 2023

Transfers between Level 1 and Level 2 fair values

Assets Liabilities

Financial

investments

Trading

assets

Designated and otherwise

mandatorily measured

at fair value Derivatives

Trading

liabilities

Designated

at fair

value Derivatives

$m $m $m $m $m $m $m

At 31 Dec 2023

Transfers from Level 1 to Level 2 13,200 8,066 1,709 — 54 — —

Transfers from Level 2 to Level 1 9,975 5,758 2,477 — 309 — —

At 31 Dec 2022

Transfers from Level 1 to Level 2 4,721 5,284 2,565 — 113 — —

Transfers from Level 2 to Level 1 8,208 5,964 3,340 — 233 — —

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of

levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

Fair value adjustments

We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation model that

would otherwise be considered by a market participant. We classify fair value adjustments as either ‘risk-related’ or ‘model-related’. The majority

of these adjustments relate to GBM. Movements in the amount of fair value adjustments do not necessarily translate in equivalent movements

of profits or losses within the income statement, as these movements can be compensated by other related profits or loss effects. For

example, as models are enhanced, fair value adjustments may no longer be required. Similarly, fair value adjustments will decrease when the

related positions are unwound, but this may not result in profit or loss.

Global Banking and Markets fair value adjustments

2023 2022

GBM

Corporate

Centre

GBM

Corporate

Centre

$m $m $m $m

Type of adjustment

Risk-related 692 41 650 40

– bid-offer 414 — 426 —

– uncertainty 75 3 86 —

– credit valuation adjustment 164 35 245 35

– debit valuation adjustment (54) — (175) —

– funding fair value adjustment 93 3 68 5

Model-related 63 — 61 —

– model limitation 63 — 61 —

Inception profit (Day 1 P&L reserves) 86 — 97 —

At 31 Dec 841 41 808 40

The increase in fair value adjustments was predominantly driven by the reduction in the debit valuation adjustment including a consideration of

the overlap with the funding fair value adjustment. This was partly offset by reductions from changes to exposure, and tightening of credit and

liquidity market spreads.

Bid-offer

IFRS 13 ‘Fair Value Measurement’ requires the use of the price within the bid-offer spread that is most representative of fair value. Valuation

models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be incurred if

substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the position.

Uncertainty

Certain model inputs may be less readily determinable from market data and/or the choice of model itself may be more subjective. Inthese

circumstances, an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative values for

uncertain parameters and/or model assumptions than those used in HSBC’s valuation model.

Credit and debit valuation adjustments

The credit valuation adjustment (‘CVA’) is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect the possibility

that the counterparty may default and that HSBC may not receive the full market value of the transactions.

The debit valuation adjustment (‘DVA’) is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC may

default, and that it may not pay the full market value of the transactions. The DVA considers the overlap with the funding fair value adjustment.

HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the exception

of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments are not netted

across Group entities.

HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on the non-default of HSBC, toHSBC’s

expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, HSBC

calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected positive exposure of the

counterparty to HSBC and multiplying the result by the loss expected in the event of default. Bothcalculations are performed over the life of the

potential exposure.

For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio, to

calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty netting

agreements and collateral agreements with the counterparty.

HSBC Holdings plc Annual Report and Accounts 2023 377

Financial statements

The methodologies do not, in general, account for ‘wrong-way risk’. Wrong-way risk is an adverse correlation between the counterparty’s

probability of default and the mark-to-market value of the underlying transaction. The risk can either be general, perhaps related to the currency

of the issuer country, or specific to the transaction concerned. When there is significant wrong-way risk, a trade-specific approach is applied to

reflect this risk in the valuation.

Funding fair value adjustment

The funding fair value adjustment (‘FFVA’) is calculated by applying future market funding spreads to the expected future funding exposure of

any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a simulation

methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the counterparty.

Model limitation

Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future

material market characteristics. In these circumstances, model limitation adjustments are adopted.

Inception profit (Day 1 P&L reserves)

Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant unobservable

inputs. The accounting for inception profit adjustments is discussed in Note 1.

Fair value valuation bases

Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3

Assets Liabilities

Financial

investments

Trading

assets

Designated

and otherwise

mandatorily

measured at

fair value

through profit

or loss Derivatives Total

Trading

liabilities

Designated

at fair

value Derivatives Total

$m $m $m $m $m $m $m $m $m

Private equity including strategic

investments

507 7 17,640 — 18,154 — 1 — 1

Asset-backed securities 309 128 8 — 445 — — — —

Structured notes — — 3 — 3 — 10,331 — 10,331

Other derivatives — — — 2,069 2,069 — — 2,569 2,569

Other portfolios 1,802 4,171 2,137 — 8,110 478 596 — 1,074

At 31 Dec 2023 2,618 4,306 19,788 2,069 28,781 478 10,928 2,569 13,975

Private equity including strategic

investments

647 19 15,653 — 16,319 92 — — 92

Asset-backed securities 438 208 95 — 741 — — — —

Structured notes — — — — — — 10,432 — 10,432

Other derivatives — — — 1,964 1,964 — — 2,920 2,920

Other portfolios 1,876 4,590 1,659 — 8,125 382 — — 382

At 31 Dec 2022 2,961 4,817 17,407 1,964 27,149 474 10,432 2,920 13,826

Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain ‘other

derivatives’ and predominantly all Level 3 asset-backed securities are legacy positions. HSBC has the capability to hold these positions.

Private equity including strategic investments

The fair value of a private equity investment (including strategic investments) is estimated on the basis of an analysis of the investee’s financial

position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an active market;

the price at which similar companies have changed ownership; or from published net asset values (‘NAV’) received. If necessary, adjustments

are made to the NAV of funds to obtain the best estimate of fair value.

Asset-backed securities

While quoted market prices are generally used to determine the fair value of the asset-backed securities (‘ABSs’), valuation models are used to

substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. For

certain ABSs, such as residential mortgage-backed securities, the valuation uses an industry standard model with assumptions relating to

prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The valuations output is

benchmarked for consistency against observable data for securities of a similar nature.

Structured notes

The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded

derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked notes

issued by HSBC, which provide the counterparty with a return linked to the performance of equity securities and other portfolios.

Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and foreign

exchange rates.

Derivatives

OTC derivative valuation models calculate the present value of expected future cash flows, based upon ‘no arbitrage’ principles. For many vanilla

derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some

differences in market practice. Inputs to valuation models are determined from observable market data wherever possible, including prices

available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but

can be determined from observable prices via model calibration procedures or estimated from historical data or other sources.

Notes on the financial statements

378 HSBC Holdings plc Annual Report and Accounts 2023

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy

Movement in Level 3 financial instruments

Assets Liabilities

Financial

investments

Trading

assets

Designated and

otherwise

mandatorily

measured at fair

value through

profit or loss Derivatives

Trading

liabilities

Designated

at fair

value Derivatives

$m $m $m $m $m $m $m

At 1 Jan 2023 2,961 4,817 17,407 1,964 474 10,432 2,920

Total gains/(losses) recognised in profit orloss (44) 266 921 692 75 97 910

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— 266 — 692 75 97 910

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — 921 — — — —

– gains less losses from financial investments at fair

value through other comprehensive income

(44) — — — — — —

Total gains/(losses) recognised in other comprehensive

income (‘OCI’)

28 108 87 81 24 523 111

– financial investments: fair value gains/(losses) (44) — — — — 335 —

– exchange differences 72 108 87 81 24 188 111

Purchases 353 2,276 3,555 — 291 — —

New issuances — 2 — — 2 5,389 —

Sales (290) (2,478) (658) — (320) (2) —

Settlements (352) (872) (1,886) (1,018) (74) (3,258) (1,565)

Transfers out (662) (922) (156) (240) (45) (2,881) (358)

Transfers in 624 1,109 518 590 51 628 551

At 31 Dec 2023 2,618 4,306 19,788 2,069 478 10,928 2,569

Unrealised gains/(losses) recognised in profit or loss

relating to assets and liabilities held at 31Dec 2023

— (152) 82 737 — (433) (903)

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (152) — 737 — — (903)

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — 82 — — (433) —

At 1 Jan 2022 3,389 2,662 14,238 2,478 785 7,880 3,088

IFRS 17 impacts (12) — 1,468 — — — —

At 1 Jan 2022 (as restated) 3,377 2,662 15,706 2,478 785 7,880 3,088

Total gains/(losses) recognised in profit orloss (4) (245) 132 390 (52) (1,334) 1,014

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (245) — 390 (52) — 1,014

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — 132 — — (1,334) —

– gains less losses from financial investments at fair

value through other comprehensive income

(4) — — — — — —

Total gains/(losses) recognised in other comprehensive

income (‘OCI’)

(325) (137) (217) (219) (11) (345) (226)

– financial investments: fair value gains/(losses) (202) — — — — 82 —

– exchange differences (123) (137) (217) (219) (11) (427) (226)

Purchases 1,048 3,436 4,410 — 178 — —

New issuances 1 — — — 8 4,183 —

Sales (240) (1,102) (801) — (152) (94) —

Settlements (464) (1,273) (1,883) (918) (644) 182 (993)

Transfers out (489) (442) (76) (409) (18) (1,296) (632)

Transfers in 57 1,918 136 642 380 1,256 669

At 31 Dec 2022 2,961 4,817 17,407 1,964 474 10,432 2,920

Unrealised gains/(losses) recognised in profit or loss

relating to assets and liabilities held at 31Dec 2022

— (100) (158) 707 2 100 2,779

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (100) — 707 2 — 2,779

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — (158) — — 100 —

1 Included in ‘financial investments: fair value gains/(losses)’ in the current year and ‘exchange differences’ in the consolidated statement of

comprehensive income.

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of

levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

HSBC Holdings plc Annual Report and Accounts 2023 379

Financial statements

Effect of changes in significant unobservable assumptions to reasonably possible

alternatives

Sensitivity of fair values to reasonably possible alternative assumptions

2023 2022

Reflected in profit or loss Reflected in OCI Reflected in profit or loss Reflected in OCI

Favourable

changes

Un-

favourable

changes

Favourable

changes

Un-

favourable

changes

Favourable

changes

Un-

favourable

changes

Favourable

changes

Un-

favourable

changes

$m $m $m $m $m $m $m $m

Derivatives, trading assets and trading

liabilities

492 (531) — — 264 (291) — —

Financial assets and liabilities designated

and otherwise mandatorily measured at

fair value through profit or loss

1,092 (1,100) — — 981 (978) — —

Financial investments 13 (12) 61 (66) 11 (11) 65 (55)

At 31 Dec 1,597 (1,643) 61 (66) 1,256 (1,280) 65 (55)

1 ‘Derivatives, trading assets and trading liabilities’ are presented as one category to reflect the manner in which these instruments are risk-managed.

The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take

account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.

When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most

favourable or the most unfavourable change from varying the assumptions individually.

Key unobservable inputs to Level 3 financial instruments

The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 31December 2023.

Quantitative information about significant unobservable inputs in Level 3 valuations

Fair value 2023 2022

Assets Liabilities

Key valuation

techniques

Key unobservable

inputs

Full range

of inputs

Full range

of inputs

$m $m Lower Higher Lower Higher

Private equity including strategic

investments

18,154 1 See below See below

Asset-backed securities 445 —

– collateralised loan/debt obligation 44 —

Market proxy Bid quotes — 94 — 92

– other ABSs

401 —

Market proxy Bid quotes — 220 — 99

Structured notes 3 10,331

– equity-linked notes 3 7,054

Model – Option model Equity volatility 6% 154% 6% 142%

Model – Option model Equity correlation 34% 100% 32% 99%

– Foreign exchange-linked notes — 1,733 Model – Option model

Foreign exchange

volatility

1% 34% 3% 37%

– other

— 1,544

Derivatives 2,069 2,569  

– interest rate derivatives

864 784  

securitisation swaps

146 136 Model – Discounted cash flow Prepayment rate 5% 10% 5% 10%

long-dated swaptions 57 69 Model – Option model

Interest rate

volatility

11% 37% 8% 53%

other

661 579

– Foreign exchange derivatives 308 427

Foreign exchange options 255 356 Model – Option model

Foreign exchange

volatility

1% 31% 1% 46%

other

53 71

– equity derivatives

600 981

long-dated single stock options 391 609 Model – Option model Equity volatility 6% 110% 7% 153%

other

209 372

– credit derivatives

297 377

Other portfolios

8,110 1,074

– repurchase agreements

1,090 310 Model – Discounted cash flow Interest rate curve 3% 8% 1% 9%

– bonds

3,278 1 Market proxy Mid quotes — 101 — 102

– other

3,742 763

At 31 Dec 2023 28,781 13,975

1 ‘Other’ includes a range of smaller asset holdings.

The range of values above shows the highest and lowest unobservable inputs that have been used to value significant Level 3 exposures and

reflects the diversity of the underlying financial instruments in scope and subsequent differentiation in pricing.

Notes on the financial statements

380 HSBC Holdings plc Annual Report and Accounts 2023

Private equity including strategic investments

Given the bespoke nature of the analysis in respect of each private equity holding, it is not practical to quote a range of key unobservable inputs.

The valuation approach includes using a range of inputs that include company-specific financials, traded comparable companies multiples,

published net asset values and qualitative assumptions, which are not directly comparable or quantifiable.

Prepayment rates

Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They vary

according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of evidence,

such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and macroeconomic modelling.

Market proxy

Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments with

common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider range of

instruments will be used to understand the factors that influence current market pricing and the manner of that influence.

Volatility

Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike and

maturity of the option. Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from observable data. The

range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price.

Correlation

Correlation is a measure of the inter-relationship between two market variables and is expressed as a number between minus one and one. It is

used to value more complex instruments where the payout is dependent upon more than one market variable. There is a wide range of

instruments for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations is

used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations.

Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices, proxy

correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the wide

variation in correlation inputs by market variable pair.

Credit spread

Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash flow

model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit spreads may

be implied from market prices and may not be observable inmore illiquid markets.

Inter-relationships between key unobservable inputs

Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables may be

correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other events.

Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC’s net risk position in respect of each variable.

HSBC Holdings

Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value

2023 2022

$m $m

Valuation technique using observable inputs: Level 2

Assets at 31 Dec

– derivatives 3,344 3,801

– designated and otherwise mandatorily measured at fair value through profit or loss 59,879 52,322

Liabilities at 31 Dec

– designated at fair value 43,638 32,123

– derivatives 6,090 6,922

HSBC Holdings plc Annual Report and Accounts 2023 381

Financial statements

Fair values of financial instruments not carried at fair value

Fair values of financial instruments not carried at fair value and bases of valuation

Fair value

Carrying

amount

Quoted market

price Level 1

Observable

inputs Level 2

Significant

unobservable

inputs Level 3

Total

$m $m $m $m $m

At 31 Dec 2023

Assets

Loans and advances to banks 112,902 2 111,263 1,479 112,744

Loans and advances to customers 938,535 — 13,258 911,124 924,382

Reverse repurchase agreements – non-trading 252,217 — 252,243 — 252,243

Financial investments – at amortised cost 148,326 115,383 30,765 440 146,588

Liabilities

Deposits by banks 73,163 — 73,176 — 73,176

Customer accounts 1,611,647 — 1,611,795 — 1,611,795

Repurchase agreements – non-trading 172,100 — 172,081 — 172,081

Debt securities in issue 93,917 — 93,196 706 93,902

Subordinated liabilities 24,954 — 27,151 — 27,151

At 31 Dec 2022

Assets

Loans and advances to banks 104,475 4 103,641 814 104,459

Loans and advances to customers 923,561 — 8,791 903,107 911,898

Reverse repurchase agreements – non-trading 253,754 — 253,668 — 253,668

Financial investments – at amortised cost 109,066 84,087 21,850 475 106,412

Liabilities

Deposits by banks 66,722 — 66,831 — 66,831

Customer accounts 1,570,303 — 1,570,209 — 1,570,209

Repurchase agreements – non-trading 127,747 — 127,500 — 127,500

Debt securities in issue 78,149 — 76,640 381 77,021

Subordinated liabilities 22,290 — 22,723 — 22,723

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year

ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

Fair values of financial instruments not carried at fair value and bases of valuation – assets and disposal groups held for sale

Fair value

Carrying

amount

Quoted market

price Level 1

Observable

inputs Level 2

Significant

unobservable

inputs Level 3

Total

$m $m $m $m $m

At 31 Dec 2023

Assets

Loans and advances to banks 10,487 — 10,487 — 10,487

Loans and advances to customers 73,376 — 90 72,200 72,290

Reverse repurchase agreements – non-trading 2,723 — 2,723 — 2,723

Financial investments – at amortised cost 7,624 7,530 — 5 7,535

Liabilities

Deposits by banks 78 — 78 — 78

Customer accounts 85,950 — 86,475 — 86,475

Repurchase agreements – non-trading 2,768 — 2,768 — 2,768

Debt securities in issue 9,084 — 8,820 — 8,820

Subordinated liabilities 8 — 7 — 7

At 31 Dec 2022

Assets

Loans and advances to banks 253 — 257 — 257

Loans and advances to customers 80,687 — 111 78,048 78,159

Reverse repurchase agreements – non-trading 4,646 — 4,646 — 4,646

Financial investments – at amortised cost 6,165 6,042 — — 6,042

Liabilities

Deposits by banks 64 — 64 — 64

Customer accounts 85,274 — 85,303 — 85,303

Repurchase agreements – non-trading 3,266 — 3,266 — 3,266

Debt securities in issue 12,928 — 12,575 — 12,575

Subordinated liabilities 8 — 7 — 7

Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly,

their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks, items in the course of

collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong currency notes in

circulation, all of which are measured at amortised cost.

Notes on the financial statements

382 HSBC Holdings plc Annual Report and Accounts 2023

Valuation

Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date. This may be different from the theoretical economic value attributed from an instrument’s cash

flows over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market

prices are available may differ from those of other companies.

Loans and advances to banks and customers

To determine the fair value of loans and advances to banks and customers, loans are segregated into portfolios of similar characteristics. Fair

values are based on observable market transactions, when available. When they are unavailable, fair values are estimated using valuation

models incorporating a range of input assumptions. These assumptions may include: value estimates from third-party brokers reflecting over-

the-counter trading activity; forward-looking discounted cash flow models, taking account of expected customer prepayment rates, using

assumptions that HSBC believes are consistent with those that would be used by market participants in valuing such loans; recent origination

pricing for similar loans; and trading inputs from other market participants including observed primary and secondary trades. From time to time,

we may engage a third-party valuation specialist to measure the fair value of a pool of loans.

The fair value of loans reflects expected credit losses at the balance sheet date and estimates of market participants’ expectations of credit

losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For credit-impaired loans,

fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.

Financial investments

The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are

determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.

Deposits by banks and customer accounts

The fair values of on-demand deposits are approximated by their carrying amount. For deposits with longer-term maturities, fair values are

estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.

Debt securities in issue and subordinated liabilities

Fair values in debt securities in issue and subordinated liabilities are determined using quoted market prices at the balance sheet date where

available, or by reference to quoted market prices for similar instruments.

Repurchase and reverse repurchase agreements – non-trading

Fair values of repurchase and reverse repurchase agreements that are held on a non-trading basis provide approximate carrying amounts. This is

due to the fact that balances are generally short dated.

HSBC Holdings

The methods used by HSBC Holdings to determine fair values of financial instruments for the purposes of measurement and disclosure are

described above.

Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet

2023 2022

Carrying amount Fair value

$m $m $m $m

Assets at 31 Dec

Loans and advances to HSBC undertakings 27,354 27,878 26,765 26,962

Financial investments – at amortised cost 19,558 19,531 19,466 19,314

Liabilities at 31 Dec

Debt securities in issue 65,239 65,172 66,938 65,364

Subordinated liabilities 24,439 26,651 19,727 20,644

1 Fair values (other than Level 1 financial investments) were determined using valuation techniques with observable inputs (Level 2).

Financial assets designated and otherwise mandatorily measured at fair

value through profit or loss

2023 2022¹

Designated at

fair value

Mandatorily

measured at

fair value

Total

Designated at

fair value

Mandatorily

measured at

fair value

Total

$m $m $m $m $m $m

Securities 2,353 101,152 103,505 3,096 91,936 95,032

– treasury and other eligible bills 695 724 1,419 649 869 1,518

– debt securities 1,658 60,045 61,703 2,447 56,633 59,080

– equity securities — 40,383 40,383 — 34,434 34,434

Loans and advances to banks and customers 371 5,495 5,866 — 3,455 3,455

Other — 1,272 1,272 — 1,614 1,614

At 31 Dec 2,724 107,919 110,643 3,096 97,005 100,101

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

HSBC Holdings plc Annual Report and Accounts 2023 383

Financial statements

Derivatives

Notional contract amounts and fair values of derivatives by product contract type held by HSBC

Notional contract amount Fair value – Assets Fair value – Liabilities

Trading Hedging Trading Hedging Total Trading Hedging Total

$m $m $m $m $m $m $m $m

Foreign exchange 9,463,768 63,547 99,014 935 99,949 99,949 780 100,729

Interest rate 14,853,397 361,312 223,534 5,119 228,653 225,443 4,080 229,523

Equities 677,149 — 14,427 — 14,427 17,603 — 17,603

Credit 153,606 — 1,351 — 1,351 1,861 — 1,861

Commodity and other 90,007 — 1,820 — 1,820 1,542 — 1,542

Gross total fair values 25,237,927 424,859 340,146 6,054 346,200 346,398 4,860 351,258

Offset (Note 31) (116,486) (116,486)

At 31 Dec 2023 25,237,927 424,859 340,146 6,054 229,714 346,398 4,860 234,772

Foreign exchange 8,434,453 38,924 122,206 525 122,731 123,088 166 123,254

Interest rate 15,213,232 276,589 285,449 5,066 290,515 287,876 3,501 291,377

Equities 570,410 — 9,325 — 9,325 9,176 — 9,176

Credit 183,995 — 1,091 — 1,091 1,264 — 1,264

Commodity and other 78,414 — 1,484 — 1,484 1,678 — 1,678

Gross total fair values 24,480,504 315,513 419,555 5,591 425,146 423,082 3,667 426,749

Offset (Note 31) (140,987) (140,987)

At 31 Dec 2022 24,480,504 315,513 419,555 5,591 284,159 423,082 3,667 285,762

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships indicate the

nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.

Derivative assets and liabilities decreased during 2023, driven by yield curve movements and changes in foreign exchange rates.

Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries

Notional contract amount Assets Liabilities

Trading Hedging Trading Hedging Total Trading Hedging Total

$m $m $m $m $m $m $m $m

Foreign exchange 66,711 — 486 — 486 1,705 — 1,705

Interest rate 33,480 92,268 1,730 1,128 2,858 747 3,638 4,385

At 31 Dec 2023 100,191 92,268 2,216 1,128 3,344 2,452 3,638 6,090

Foreign exchange 60,630 — 502 — 502 1,683 — 1,683

Interest rate 34,322 81,873 2,386 913 3,299 826 4,413 5,239

At 31 Dec 2022 94,952 81,873 2,888 913 3,801 2,509 4,413 6,922

Use of derivatives

For details regarding the use of derivatives, see page 220 under ‘Market risk’.

Trading derivatives

Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative

products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include market-making and

risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenue based

on spread and volume. Risk management activity is undertaken to manage the risk arising from client transactions, with the principal purpose of

retaining client margin. Other derivatives classified as held for trading include non-qualifying hedging derivatives.

Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial liabilities.

Notes on the financial statements

384 HSBC Holdings plc Annual Report and Accounts 2023

Hedge accounting derivatives

HSBC applies hedge accounting to manage the following risks: interest rate and foreign exchange risks. Further details of how these risks arise

and how they are managed by the Group can be found in the ‘Risk review’.

Hedged risk components

HSBC designates a portion of cash flows of a financial instrument or a group of financial instruments for a specific interest rate or foreign

currency risk component in a fair value or cash flow hedge. The designated risks and portions are either contractually specified or otherwise

separately identifiable components of the financial instrument that are reliably measurable. Risk-free or benchmark interest rates generally are

regarded as being both separately identifiable and reliably measurable, except for the Interest Rate Benchmark Reform Phase 2 transition where

HSBC designates alternative benchmark rates as the hedged risk which may not have been separately identifiable upon initial designation,

provided HSBC reasonably expects it will meet the requirement within 24 months from the first designation date. The designated risk

components account for a significant portion of the overall changes in fair value or cash flows of the hedged items.

HSBC uses net investment hedges to hedge the structural foreign exchange risk related to net investments in foreign operations including

subsidiaries and branches whose functional currencies are different from that of the parent. When hedging with foreign exchange forward

contracts, the spot rate component of the foreign exchange risk is designated for an amount of net assets as the hedged risk.

Sources of hedge ineffectiveness may arise from basis risk, including but not limited to the discount rates used for calculating the fair value of

derivatives, hedges using instruments with a non-zero fair value, and notional and timing differences between the hedged items and hedging

instruments.

Fair value hedges

HSBC enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value caused by movements in market

interest rates on certain fixed-rate financial instruments that are not measured at fair value through profit or loss, including debt securities held

and issued.

HSBC hedging instrument by hedged risk

Hedging instrument

Carrying amount

Notional amount

Assets Liabilities

Balance sheet

presentation

Change in fair value

Hedged risk

$m $m $m $m

Interest rate

172,985 3,729 2,965 Derivatives (1,043)

At 31 Dec 2023 172,985 3,729 2,965 (1,043)

Interest rate

162,062 4,973 2,573 Derivatives 4,064

At 31 Dec 2022 162,062 4,973 2,573 4,064

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions

outstanding at the balance sheet date. They do not represent amounts at risk.

2 Used in effectiveness testing, which uses the full fair value change of the hedging instrument not excluding any component.

3 The hedged risk ‘interest rate’ includes inflation risk.

HSBC hedged item by hedged risk

Hedged item Ineffectiveness

Carrying amount

Accumulated fair value

hedge adjustments

included in carrying

amount

Change in

fair value

Recognised

in profit

and loss

Assets Liabilities Assets Liabilities

Balance sheet

presentation

Profit and loss

presentation

Hedged risk

$m $m $m $m $m $m

Interest rate

82,321 (2,282)

Financial investments -

measured at fair value

through other

comprehensive income

2,053

Net income from

financial instruments

held for trading or

managed on a fair

value basis

514 32

Financial investments -

measured at amortised

cost

4,701 (18)

Loans and advances to

customers

122

— —

Reverse repurchase

agreements – non-

trading

64,269 (2,147) Debt securities in issue (1,179)

— — Deposits by banks

—

— — Subordinated liabilities 5

At 31 Dec 2023 87,536 64,269 (2,268) (2,147) 1,048 5

HSBC Holdings plc Annual Report and Accounts 2023 385

Financial statements

HSBC hedged item by hedged risk (continued)

Hedged item Ineffectiveness

Carrying amount

Accumulated fair value

hedge adjustments

included in carrying

amount

Change in fair

value

Recognised

in profit and

loss

Assets Liabilities Assets Liabilities

Balance sheet presentation

Profit and loss

presentation

Hedged risk $m $m $m $m $m $m

Interest rate

82,792 (5,100)

Financial investments -

measured at fair value through

other comprehensive income

(8,005)

(59)

Net income from

financial instruments

held for trading or

managed on a fair

value basis

3,415 (210)

Loans and advances to

customers

(233)

519 (18)

Reverse repurchase

agreements – non-trading

(17)

49,180 (2,006) Debt securities in issue 4,138

83 — Deposits by banks (5)

At 31 Dec 2022 86,726 49,263 (5,328) (2,006) (4,122) (59)

1 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted

for hedging gains and losses were liabilities of $136m (2022: $252m) for FVOCI assets and liabilities of $1,256m (2022: $916m) for debt issued.

2 Used in effectiveness testing, which comprise an amount attributable to the designated hedged risk that can be a risk component.

3 The hedged risk ‘interest rate’ includes inflation risk.

HSBC Holdings hedging instrument by hedged risk

Hedging instrument

Carrying amount

Notional amount

1,2

Assets Liabilities

Balance sheet

presentation

Change in fair value

Hedged risk

$m $m $m $m

Interest rate

92,268 1,128 3,638 Derivatives 1,426

At 31 Dec 2023 92,268 1,128 3,638 1,426

Interest rate

81,873 913 4,413 Derivatives (5,599)

At 31 Dec 2022 81,873 913 4,413 (5,599)

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions

outstanding at the balance sheet date. They do not represent amounts at risk.

2 The notional amount of non-dynamic fair value hedges is equal to $92,268m (2022: $81,873m), of which the weighted-average maturity date is

May2029 and the weighted-average swap rate is 2.46% (2022: 2.33%). The majority of these hedges are internal to the Group.

3 Used in effectiveness testing, comprising the full fair value change of the hedging instrument not excluding any component.

4 The hedged risk ‘interest rate’ includes foreign exchange risk.

HSBC Holdings hedged item by hedged risk

Hedged item Ineffectiveness

Carrying amount

Accumulated fair value

hedge adjustments

included in carrying

amount

Change in

fair value

Recognised

profit and

loss

Assets

Liabilities

Assets

Liabilities

Balance sheet

presentation

Profit and loss

presentation

Hedged risk

$m $m $m $m $m $m

Interest rate

80,889 (2,971)

Debt securities

in issue (1,716) 29

Net income from

financial instruments

held for trading or

managed on a fair value

basis

7,772 (490)

Loans and

advances to banks 319

At 31 Dec 2023 7,772 80,889 (490) (2,971) (1,397) 29

Interest rate

68,223 (3,829)

Debt securities

in issue 6,258 (34)

Net income from financial

instruments held for

trading or managed on a

fair value basis

6,812 (789)

Loans and

advances to banks (693)

At 31 Dec 2022 6,812 68,223 (789) (3,829) 5,565 (34)

1 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted

for hedging gains and losses were liabilities of $1,299m (2022: $971m) for debt issued.

2 Used in effectiveness testing, comprising amount attributable to the designated hedged risk that can be a risk component.

3 The hedged risk ‘interest rate’ includes foreign exchange risk.

For some debt securities held, HSBC manages interest rate risk in a dynamic risk management strategy. The assets in scope of this strategy are

high-quality fixed-rate debt securities, which may be sold to meet liquidity and funding requirements.

The interest rate risk of the HSBC fixed-rate debt securities issued is managed in a non-dynamic risk management strategy.

Notes on the financial statements

386 HSBC Holdings plc Annual Report and Accounts 2023

Cash flow hedges

HSBC’s cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the

variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and foreign-

currency basis.

HSBC applies macro cash flow hedging for interest rate risk exposures on portfolios of replenishing current and forecasted issuances of non-

trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future cash flows,

representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual

terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows representing both principal

balances and interest cash flows across all portfolios are used to determine the effectiveness and ineffectiveness. Macro cash flow hedges are

considered to be dynamic hedges.

HSBC also hedges the variability in future cash flows on foreign-denominated financial assets and liabilities arising due to changes in foreign

exchange market rates with cross-currency swaps, which are considered dynamic hedges.

Hedging instrument by hedged risk

Hedging instrument Hedged item Ineffectiveness

Carrying amount

Change in

fair value

Change in fair

value

Recognised

in profit and

loss

Profit and loss

presentation

Notional

amount

Assets Liabilities

Balance

sheet

presentation

Hedged risk

$m $m $m

$m $m

Foreign currency 29,772 935 257 Derivatives 977 977 —

Net income from

financial instruments

held for trading or

managed on a fair

value basisInterest rate 188,327 1,390 1,116 Derivatives 1,542 1,512 30

At 31 Dec 2023 218,099 2,325 1,373 2,519 2,489 30

Foreign currency 8,781 418 166 Derivatives 659 659 —

Net income from

financial instruments

held for trading or

managed on a fair

value basis

Interest rate 114,527 93 950 Derivatives (4,997) (4,973) (24)

At 31 Dec 2022 123,308 511 1,116 (4,338) (4,314) (24)

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions

outstanding at the balance sheet date. They do not represent amounts at risk.

2 Used in effectiveness testing, comprising the full fair value change of the hedging instrument not excluding any component.

3 Used in effectiveness assessment, comprising amount attributable to the designated hedged risk that can be a risk component.

Reconciliation of equity and analysis of other comprehensive income by risk type

Interest rate Foreign currency

$m $m

Cash flow hedging reserve at 1 Jan 2023 (3,387) (421)

Fair value gains/(losses) 1,512 977

Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:

Hedged items that have affected profit or loss

2,196 (718)

Income taxes (937) (29)

Others (285) 59

Cash flow hedging reserve at 31 Dec 2023 (901) (132)

Cash flow hedging reserve at 1 Jan 2022 8 (205)

Fair value gains/(losses) (4,973) 659

Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:

Hedged items that have affected profit or loss 325 (926)

Income taxes 1,123 28

Others 130 23

Cash flow hedging reserve at 31 Dec 2022 (3,387) (421)

1 Hedged items that have affected profit or loss are primarily recorded within interest income.

Net investment hedges

The Group applies hedge accounting in respect of certain net investments in non-US dollar functional currency foreign operations for changes in

spot exchange rates only. Hedging could be undertaken for Group structural exposure to changes in the US dollar to foreign currency exchange

rates using forward foreign exchange contracts or by financing with foreign currency borrowings. An economic relationship exists between the

hedged net investment and hedging instrument due to the shared foreign currency risk exposure. For further details of our structural foreign

exchange exposures, see page 205.

HSBC Holdings plc Annual Report and Accounts 2023 387

Financial statements

The aggregate positions at the reporting date and the performance indicators of both live and de-designated hedges are summarised below.

Hedges of net investment in foreign operations

Carrying amount

Nominal

amount

Amounts

recognised

in OCI

Change in

fair value

Hedge ineffectiveness

recognised in income

statement

Derivative

assets

Derivative

liabilities

Description of hedged risk

$m $m $m $m $m $m

2023

Pound sterling-denominated structural foreign exchange (404) 16,415 604 (843) —

Swiss franc-denominated structural foreign exchange (23) 526 49 (62) —

Hong Kong dollar-denominated structural foreign exchange — 5,792 — 2 —

Other structural foreign exchange

(96) 11,042 477 102 —

Total — (523) 33,775 1,130 (801) —

2022

Pound sterling-denominated structural foreign exchange 264 — 14,000 1,447 1,573 —

Swiss franc-denominated structural foreign exchange — (21) 727 111 10 —

Hong Kong dollar-denominated structural foreign exchange — (19) 4,597 (2) (7) —

Other structural foreign exchange

— (117) 10,819 375 369 —

Total 264 (157) 30,143 1,931 1,945 —

1 Amount recognised in OCI for Swiss franc includes $110m (2022: $110m) related to de-designated hedge.

2 Used in effectiveness assessment, comprising amount attributable to the designated hedged risk that can be a risk component.

3 Other currencies include euro, New Taiwan dollar, Singapore dollar, Canadian dollar, Omani rial, South Korean won, UAE dirham, Indian rupee, Chinese

renminbi, Kuwaiti dinar, Qatari riyal, Saudi riyal, Indonesian rupiah and Philippine peso.

Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 ‘Financial Instruments’

HSBC has applied both the first set of amendments (‘Phase 1’) and the second set of amendments (‘Phase 2’) to IFRS 9 and IAS 39 applicable

to hedge accounting. The hedge accounting relationships that are affected by Phase 1 and Phase 2 amendments are presented in the balance

sheet as ‘Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive income’, ‘Loans and

advances to customers’, ‘Debt securities in issue’ and ‘Deposits by banks’. The notional value of the derivatives impacted by the Ibor reform,

including those designated in hedge accounting relationships, is disclosed in Note 32. For further details of Ibor transition, see ‘Ibor transition’

on page 139.

For some of the Ibors included under the ‘Other’ header in the table below, judgement has been needed to establish whether a transition is

required, since there are Ibor benchmarks that are subject to computation methodology improvements and insertion of fallback provisions

without full clarity being provided by their administrators on whether these Ibor benchmarks will be demised.

The notional amounts of interest rate derivatives designated in hedge accounting relationships do not represent the extent of the risk exposure

managed by the Group but they are expected to be directly affected by market-wide Ibor reform and in scope of Phase 1 amendments and are

shown in the table below. The cross-currency swaps designated in hedge accounting relationships and affected by Ibor reform are not

significant and have not been presented below.

Hedging instrument impacted by Ibor reform

Hedging instrument

Impacted by Ibor reform

Not impacted

by Ibor

reform

Notional

amount

€

Other

Total

$m $m $m $m $m

$m $m

Fair value hedges 16,907 — — 4,384 21,291 151,694 172,985

Cash flow hedges 10,850 — — 3,504 14,354 173,973 188,327

At 31 Dec 2023 27,757 — — 7,888 35,645 325,667 361,312

Fair value hedges 12,756 — 2,015 12,643 27,414 134,648 162,062

Cash flow hedges 8,865 — — 27,830 36,695 77,832 114,527

At 31 Dec 2022 21,621 — 2,015 40,473 64,109 212,480 276,589

1 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform consist of hedges with a Euribor benchmark.

2 Other benchmarks impacted by Ibor reform consist mainly of Emirates interbank offered rate, Mexican interbank equilibrium interest rate (‘TIIE’) and

Korean won-related derivatives. In 2022, the Hong Kong interbank offered rate (‘HIBOR’) was included in ‘Other‘ given that reform in the benchmark

was considered possible. At 31 December 2023, HIBOR was no longer expected to be directly affected by Ibor reform following the successful

transition of all Libor settings and the HKMA’s affirmation that there are no plans to discontinue HIBOR. As a result HIBOR has been moved from

‘Other‘ to ‘Not impacted by Ibor reform‘.

3 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of

transactions outstanding at the balance sheet date and they do not represent amounts at risk.

Notes on the financial statements

388 HSBC Holdings plc Annual Report and Accounts 2023

Hedging instrument impacted by Ibor reform held by HSBC Holdings

Hedging instrument

Impacted by Ibor reform

Not impacted

by Ibor

reform

Notional

amount

€

Other

Total

$m $m $m $m $m

$m $m

Fair value hedges 19,614 — — 583 20,197 72,071 92,268

At 31 Dec 2023 19,614 — — 583 20,197 72,071 92,268

Fair value hedges 15,210 — 2,000 1,336 18,546 63,327 81,873

At 31 Dec 2022 15,210 — 2,000 1,336 18,546 63,327 81,873

Financial investments

Carrying amount of financial investments

2023 2022¹

$m $m

Financial investments measured at fair value through other comprehensive income 294,437 255,660

– treasury and other eligible bills 102,438 86,749

– debt securities 190,119 167,107

– equity securities 1,447 1,696

– other instruments 433 108

Debt instruments measured at amortised cost 148,326 109,066

– treasury and other eligible bills 30,733 34,507

– debt securities 117,593 74,559

At 31 Dec 442,763 364,726

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

Equity instruments measured at fair value through other comprehensive income

Fair value

Dividends

recognised

Type of equity instruments

$m $m

Investments required by central institutions 609 27

Business facilitation 793 35

Others 45 2

At 31 Dec 2023 1,447 64

Investments required by central institutions 690 24

Business facilitation 954 28

Others 52 2

At 31 Dec 2022 1,696 54

Weighted average yields of investment debt securities

Up to 1

year

1 to 5

years

5 to 10

years

Over 10

years

Yield

% % % %

Debt securities measured at fair value through other comprehensive income

US Treasury 2.1 2.0 2.0 2.4

US Government agencies 3.6 3.1 3.3 3.0

US Government-sponsored agencies 1.0 2.6 2.1 1.8

UK Government 0.2 2.8 0.8 2.5

Hong Kong Government 1.0 1.4 1.6 —

Other governments 3.2 3.5 3.3 2.9

Asset-backed securities 1.4 6.6 4.8 5.3

Corporate debt and other securities 5.5 3.1 3.1 2.4

Debt securities measured at amortised cost

US Treasury 8.9 3.7 3.7 2.1

US Government agencies 7.9 7.8 5.8 4.5

US Government-sponsored agencies 2.3 3.7 3.4 2.9

UK Government — — 0.9 4.5

Hong Kong Government — 2.6 — —

Other governments 2.7 3.5 5.3 —

Asset-backed securities 4.7 — 7.7 —

Corporate debt and other securities 2.6 2.6 3.5 5.2

HSBC Holdings plc Annual Report and Accounts 2023 389

Financial statements

The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average yield for

each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 2023 by the book amount of

debt securities at that date. The yields do not include the effect of related derivatives.

HSBC Holdings

HSBC Holdings carrying amount of financial investments

2023 2022

$m $m

Debt instruments measured at amortised cost

– treasury and other eligible bills 15,629 12,796

– debt securities 3,929 6,670

At 31 Dec 19,558 19,466

Weighted average yields of investment debt securities

Up to 1

year

1 to 5

years

5 to 10

years

Over 10

years

Yield Yield Yield Yield

% % % %

Debt securities measured at amortised cost

US Treasury 3.2 4.3 — —

The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended

31December 2023 by the book amount of debt securities at thatdate. The yields do not include the effect ofrelated derivatives.

Assets pledged, collateral received and assets transferred

Assets pledged

Financial assets pledged as collateral

2023 2022

$m $m

Treasury bills and other eligible securities 20,504 18,364

Loans and advances to banks 13,636 10,198

Loans and advances to customers 27,490 27,627

Debt securities 88,367 60,542

Equity securities 40,280 26,902

Other 61,223 67,576

Assets pledged at 31 Dec 251,500 211,209

Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 27 of the Pillar 3 Disclosures at

31December 2023, except for assets held for sale.

The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the case of

securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book value of the pool of

assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement agent that has a floating

charge over all the assets placed to secure any liabilities under settlement accounts.

These transactions are conducted under terms that are usual and customary for collateralised transactions including, where relevant, standard

securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash collateral in relation to

derivative transactions.

Hong Kong currency notes in circulation are secured by the deposit of funds in respect of which the Hong Kong Government certificates of

indebtedness are held.

Financial assets pledged as collateral which the counterparty has the right to sell or repledge

2023 2022

$m $m

Trading assets 77,847 56,894

Financial investments 39,324 27,841

At 31 Dec 117,171 84,735

Collateral received

The fair value of assets accepted as collateral relating primarily to standard securities lending, reverse repurchase agreements, swaps of

securities and derivative margining that HSBC is permitted to sell or repledge in the absence of default was $495,653m (2022:$449,896m). The

fair value of any such collateral sold or repledged was $284,108m (2022: $228,245m).

HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard

securities lending, reverse repurchase agreements and derivative margining.

Notes on the financial statements

390 HSBC Holdings plc Annual Report and Accounts 2023

Assets transferred

The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities

held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements, as well as

swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full while a related

liability, reflecting the Group’s obligation to repurchase the assets for a fixed price at a future date, is also recognised on the balance sheet.

Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral

received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the

transaction, and remains exposed to interest rate risk and credit risk on these pledged assets.

Transferred financial assets not qualifying for full derecognition and associated financial liabilities

Carrying amount of:

Transferred

assets

Associated

liabilities

$m $m

At 31 Dec 2023

Repurchase agreements 81,486 74,517

Securities lending agreements 46,663 3,826

At 31 Dec 2022

Repurchase agreements 52,604 48,501

Securities lending agreements 39,134 4,613

1 Excludes assets classified as held for sale.

Interests in associates and joint ventures

Carrying amount of HSBC’s interests in associates and joint ventures

2023 2022

$m $m

Interests in associates 27,200 29,127

Interests in joint ventures 144 127

Interests in associates and joint ventures 27,344 29,254

Principal associates of HSBC

2023 2022

Carrying amount Fair value

$m $m $m $m

Bank of Communications Co., Limited 21,210 8,812 23,307 8,141

Saudi Awwal Bank 4,659 6,438 4,494 6,602

1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the

fair value hierarchy).

At 31 Dec 2023

Jurisdiction of incorporation

and principal place of

business

Principal activity

HSBC’s interest

Bank of Communications Co., Limited Mainland China Banking services 19.03

Saudi Awwal Bank Saudi Arabia Banking services 31.00

1 There has been no percentage change in HSBC’s shareholding interest in the principal associates when compared with 2022.

Share of profit in associates and joint ventures

2023 2022

$m $m

Bank of Communications Co., Limited 2,250 2,377

Saudi Awwal Bank 538 342

Other associates and joint ventures 19 4

Share of profit in associates and joint ventures 2,807 2,723

Less: Impairment of interest in BoCom (3,000) —

A list of all associates and joint ventures is set out in Note 40.

HSBC Holdings plc Annual Report and Accounts 2023 391

Financial statements

Bank of Communications Co., Limited

We maintain a 19.03% interest in Bank of Communications Co., Limited (‘BoCom’). The Group’s investment in BoCom is classified as an

associate. Significant influence in BoCom was established with consideration of all relevant factors, including representation on BoCom’s Board

of Directors and participation in a resource and experience sharing agreement (‘RES’). Under the RES, HSBC staff have been seconded to assist

in the maintenance of BoCom’s financial and operating policies. Investments in associates are recognised using the equity method of

accounting in accordance with IAS 28 ‘Investments in Associates and Joint Ventures’, whereby the investment is initially recognised at cost and

adjusted thereafter for the post-acquisition change in the Group’s share of associate’s net assets. An impairment test is required if there is any

indication of impairment.

Impairment testing

The fair value of the Group’s investment in BoCom had been below the carrying amount for approximately 12 years. We have previously

disclosed that the excess of the value in use (‘VIU’) calculation over its balance sheet value has been marginal in recent years, and that

reasonably possible changes in assumptions could generate an impairment.

Recent macroeconomic, policy and industry-wide factors resulted in a wider range of possible VIU calculation outcomes, and our VIU calculation

uses both historical experience and market participant views to estimate future cash flows, relevant discount rates and associated capital

assumptions. At 31 December 2023, the Group performed an impairment test on the carrying amount, which resulted in an impairment of

$3.0bn, as the recoverable amount as determined by a VIU calculation was lower than the carrying value.

At 31 Dec 2023 At 31 Dec 2022

VIU

Carrying value

Fair value

VIU

Carrying value

Fair value

$bn $bn $bn $bn $bn $bn

BoCom 21.2 21.2 8.8 23.5 23.3 8.1

The impairment test will be updated in future periods, reflecting updated assumptions in the VIU impairment calculation. Going forward, the

carrying value will be aligned to the updated VIU calculation and capped at carrying value that would have been determined had no impairment

loss been recognised, rather than at cost and adjusted thereafter for the post-acquisition change in the Group’s share of associate’s net assets,

and therefore there is a risk of reversals or further impairments in future periods.

The VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described below and are

based on factors observed at period-end. The factors that could result in increases or reductions in the VIU include changes in BoCom’s short-

term performance, a change in regulatory capital requirements or revisions to the forecast of BoCom’s future profitability.

If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value.

Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying value.

The VIU calculation uses discounted cash flow projections based on management’s best estimates of future earnings available to ordinary

shareholders prepared in accordance with IAS 36 ’Impairment of Assets’. Significant management judgement is required in arriving at the best

estimate.

There are two main components to the VIU calculation. The first component is management’s best estimate of BoCom’s earnings. Forecast

earnings growth over the short to medium term is lower than recent (within the last five years) actual growth, and reflects the impact of recent

macroeconomic, policy and industry factors in mainland China. As a result of management‘s intent to continue to retain its investment, earnings

beyond the short to medium term are then extrapolated into perpetuity using a long-term growth rate to derive a terminal value, which

comprises the majority of the VIU. The second component is the capital maintenance charge (‘CMC’), which is management’s forecast of the

earnings that need to be withheld in order for BoCom to meet capital requirements over the forecast period, meaning that CMC is deducted

when arriving at management’s estimate of future earnings available to ordinary shareholders. The CMC reflects the revised capital

requirements arising from revisions of the ratio of risk-weighted assets to total assets assumption. The principal inputs to the CMC calculation

include estimates of asset growth, the ratio of risk-weighted assets to total assets and the expected capital requirements. An increase in the

CMC as a result of a change to these principal inputs would reduce VIU. Additionally, management considers other qualitative factors, to ensure

that the inputs to the VIU calculation remain appropriate.

Key assumptions in value in use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

– Long-term profit growth rate: 3% (2022: 3%) for periods after 2027, which does not exceed forecast GDP growth in mainland China and is

similar to forecasts by external analysts.

– Long-term asset growth rate: 3% (2022: 3%) for periods after 2027, which is the rate that assets are expected to grow to achieve long-term

profit growth of 3%.

– Discount rate: 9.00% (2022: 10.04%), which is based on a capital asset pricing model (‘CAPM’), using market data. The discount rate used is

within the range of 7.9% to 9.7% (2022: 8.4% to 10.4%) indicated by the CAPM, and decreased as a consequence of a market-driven

reduction in beta. While the CAPM range sits at the lower end of the range adopted by selected external analysts of 8.8% to 13.5%

(2022:8.8% to 13.5%), we continue to regard the CAPM range as the most appropriate basis for determining this assumption.

– Expected credit losses (‘ECL’) as a percentage of loans and advances to customers: ranges from 0.80% to 0.97% (2022: 0.99% to 1.05%) in

the short to medium term, reflecting reported credit experience in mainland China. For periods after 2027, the ratio is 0.97% (2022: 0.97%),

which is higher than BoCom’s average ECL as a percentage of loans and advances to customers in recent years prior to the pandemic.

– Risk-weighted assets as a percentage of total assets: ranges from 62.0% to 63.7% (2022: 61.0% to 64.4%) in the short to medium term,

reflecting higher risk-weights in the short term followed by an expected reversion to recent historical levels. For periods after 2027, the ratio

is 62.0% (2022: 61.0%), which is similar to BoCom’s actual results in recent years.

– Loans and advances to customers growth rate: ranges from 9.0% to 10.0% (2022: 7.1% to 11.0%) in the short to medium term, reflecting

higher growth rate in loans and advances to customers as a result of recent macroeconomic, policy and industry factors in mainland China.

Increases in the forecast growth rate of loans and advances to customers results in higher forecast ECL.

Notes on the financial statements

392 HSBC Holdings plc Annual Report and Accounts 2023

– Operating income growth rate: ranges from -0.4% to 9.7% (2022: 1.9% to 7.7%) in the short to medium term, which is lower than BoCom’s

actual results in recent years, and is impacted by projections of net interest income in the short term as a consequence of recent

macroeconomic, policy and industry factors in mainland China.

– Cost-income ratio: ranges from 35.5% to 39.8% (2022: 35.5% to 36.3%) in the short to medium term. These ratios are higher than BoCom‘s

actual results in recent years and forecasts disclosed by external analysts.

– Effective tax rate (‘ETR’): ranges from 5.3% to 15.0% (2022: 4.4% to 15.0%) in the short to medium term, reflecting BoCom’s actual results

and an expected increase towards the long-term assumption through the forecast period. For periods after 2027, the rate is 15.0%

(2022:15.0%), which is higher than the recent historical average, and aligned to the minimum tax rate as proposed by the OECD/Group of 20

(‘G20’) Inclusive Framework on Base Erosion and Profit Shifting.

– Capital requirements: capital adequacy ratio of 12.5% (2022: 12.5%) and tier 1 capital adequacy ratio of 9.5% (2022: 9.5%), based on

BoCom’s capital risk appetite and capital requirements respectively.

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the

VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change may occur at the same

time. Loans and advances to customers growth rate has been added to the list of key assumptions detailed in the table to reflect the greater

potential variability associated with the assumption as a result of recent macroeconomic, policy and industry factors in mainland China. The

selected rates of reasonably possible changes to key assumptions are based on external analysts’ forecasts, statutory requirements and other

relevant external data sources, which can change period to period. Unless specified, favourable and unfavourable changes are consistently

applied throughout short-to-medium and long-term forecast years, based on a straight-line average of the base case assumption.

Sensitivity of VIU to reasonably possible changes in key assumptions

Favourable change Unfavourable change

Increase in

VIU

Decrease in

VIU

bps $bn $bn bps $bn $bn

At 31 Dec 2023

Long-term profit growth rate

58 3.3 24.5 (79) (3.4) 17.8

Long-term asset growth rate

(79) 4.5 25.7 58 (4.0) 17.2

Discount rate (110) 4.5 25.7 280 (6.1) 15.1

Expected credit losses as a percentage

of loans and advances to customers

2023 to 2027: 78

2028 onwards: 91

2.9 24.1

2023 to 2027: 120

2028 onwards: 104

(4.4) 16.8

Risk-weighted assets as a percentage of total assets (150) 0.9 22.1 216 (1.6) 19.6

Loans and advances to customers growth rate (213) 3.2 24.4 207 (2.9) 18.3

Operating income growth rate 57 2.6 23.8 (81) (2.6) 18.6

Cost-income ratio (212) 0.8 22.0 99 (2.9) 18.3

Long-term effective tax rate (426) 1.6 22.8 1,000 (3.5) 17.7

Capital requirements – capital adequacy ratio — — 21.2 215 (7.5) 13.7

Capital requirements – tier 1 capital adequacy ratio — — 21.2 248 (3.7) 17.5

At 31 Dec 2022

Long-term profit growth rate

75 3.6 27.1 (71) (2.7) 20.8

Long-term asset growth rate

(71) 3.1 26.6 75 (4.1) 19.4

Discount rate (164) 6.9 30.4 136 (3.7) 19.8

Expected credit losses as a percentage

of loans and advances to customers

2022 to 2026: 95

2027 onwards: 91

1.9 25.4

2022 to 2026: 120

2027 onwards: 104

(2.9) 20.6

Risk-weighted assets as a percentage of total assets (118) 0.1 23.6 239 (2.3) 21.2

Loans and advances to customers growth rate (75) 1.1 24.6 295 (3.2) 20.3

Operating income growth rate 44 1.3 24.8 (83) (2.5) 21.0

Cost-income ratio (122) 1.0 24.5 174 (2.1) 21.4

Long-term effective tax rate (426) 1.5 25.0 1,000 (3.6) 19.9

Capital requirements – capital adequacy ratio — — 23.5 191 (6.3) 17.2

Capital requirements – tier 1 capital adequacy ratio — — 23.5 266 (3.2) 20.3

1 The favourable and unfavourable ranges of the long-term profit growth rate and long-term asset growth rate assumptions reflect the close relationship

between these assumptions, which would result in offsetting changes to each assumption.

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is

$13.1bn to $28.8bn (2022: $16.9bn to $28.7bn), acknowledging that the fair value of the Group’s investment has ranged from $6.8bn to $11.6bn

over the last five years as at the date of the impairment tests. The possible range of VIU is based on impacts set out in the table above arising

from the favourable/unfavourable change in the earnings in the short to medium term, the long-term expected credit losses as a percentage of

loans and advances to customers, and a 50bps increase/decrease in the discount rate. All other long-term assumptions, and the basis of the

CMC have been kept unchanged when determining the reasonably possible range of the VIU.

Selected financial information of BoCom

The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2023, HSBC included the associate’s

results on the basis of the financial statements for the 12 months ended 30 September 2023, taking into account any known changes in the

subsequent period from 1 October 2023 to 31 December 2023 that would have materially affected the results.

HSBC Holdings plc Annual Report and Accounts 2023 393

Financial statements

Selected balance sheet information of BoCom

At 30 Sep At 31 Dec

2023 2022

$m $m

Cash and balances at central banks 112,800 116,942

Due from and placements with banks and other financial institutions 100,464 100,160

Loans and advances to customers 1,087,613 1,035,151

Other financial assets 587,949 583,898

Other assets 59,215 48,796

Total assets 1,948,041 1,884,947

Due to and placements from banks and other financial institutions 292,065 295,205

Deposits from customers 1,216,611 1,153,184

Other financial liabilities 251,246 249,230

Other liabilities 36,776 37,153

Total liabilities 1,796,698 1,734,772

Total equity 151,343 150,175

Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements

At 30 Sep

2023 2022

$m $m

HSBC’s share of total shareholders’ equity 23,746 22,828

Goodwill originally arising on acquisition 464 479

Impairment (3,000) —

Carrying amount 21,210 23,307

Selected income statement information of BoCom

For the 9 months ended 30 Sep

2023 2022

$m $m

Net interest income 17,519 19,004

Net fee and commission income 4,815 5,181

Credit and impairment losses (6,836) (7,641)

Depreciation and amortisation (1,977) (1,785)

Tax expense (552) (436)

Profit for the year 9,835 10,102

Other comprehensive income 631 (37)

Total comprehensive income 10,466 10,065

Dividends received from BoCom 736 749

Saudi Awwal Bank

The Group’s investment in Saudi Awwal Bank (‘SAB’) is classified as an associate. HSBC is the largest shareholder in SAB with a shareholding

of 31%. Significant influence in SAB is established via representation on the Board of Directors. Investments in associates are recognised using

the equity method of accounting in accordance with IAS 28, as described previously for BoCom.

Impairment testing

There were no indicators of impairment at 31 December 2023. The fair value of the Group’s investment in SAB of $6.4bn was above the

carrying amount of $4.7bn.

Notes on the financial statements

394 HSBC Holdings plc Annual Report and Accounts 2023

Investments in subsidiaries

Main subsidiaries of HSBC Holdings

At 31 Dec 2023

Place of

incorporation or

registration

HSBC’s

interest

Share class

Europe

HSBC Bank plc England and Wales 100

£1 Ordinary, $0.01 Non-Cumulative Third Dollar

Preference

HSBC UK Bank plc England and Wales 100 £1 Ordinary

HSBC Continental Europe France 99.99 €5 Actions

HSBC Trinkaus & Burkhardt GmbH Germany 99.99 €1 Ordinary

Asia

Hang Seng Bank Limited

Hong Kong 62.14 HK$5 Ordinary

HSBC Bank (China) Company Limited

People’s Republic of

China

100 CNY1 Ordinary

HSBC Bank Malaysia Berhad Malaysia 100 RM0.5 Ordinary

HSBC Life (International) Limited Bermuda 100 HK$1 Ordinary

The Hongkong and Shanghai Banking Corporation Limited Hong Kong 100 Ordinary no par value

Middle East, North Africa and Türkiye

HSBC Bank Middle East Limited United Arab Emirates 100

$1 Ordinary and $1 Cumulative Redeemable Preference

North America

HSBC Bank Canada Canada 100 Common no par value and Preference no par value

HSBC Bank USA, N.A. US 100 $100 Common and $0.01 Preference

Latin America

HSBC Mexico, S.A., Institución de Banca Múltiple,

Grupo Financiero HSBC

Mexico 99.99 MXN2 Ordinary

1 Main subsidiaries are either held directly or indirectly via intermediate holding companies. There has been no material percentage change in HSBC’s

shareholding for its main subsidiaries since 2022.

2 In addition to the strategic holding disclosed above, the Group held 0.09% (2022: 0.07%) shareholding as part of its trading books.

Details of the debt, subordinated debt and preference shares issued by the main subsidiaries to parties external to the Group are included in

Note 26 ‘Debt securities in issue’ and Note 29 ‘Subordinated liabilities’, respectively.

A list of all related undertakings is set out in Note 40. The principal countries and territories of operation are the same as the countries and

territories of incorporation except for HSBC Life (International) Limited, which operates mainly in Hong Kong.

HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised in

accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s risk appetite for the relevant

country or region. HSBC’s capital management process is incorporated in the financial resource plan, which is approved by the Board.

HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary.

These investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital, and by profit retention.

As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its

investment in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings’ ability to provide funding for such

investments. During 2023, consistent with the Group’s capital plan, the Group’s material subsidiaries did not experience any significant

restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned

dividends or payments from material subsidiaries. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings

depends on, among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and

financial and operating performance.

The amount of guarantees by HSBC Holdings in favour of other Group entities is set out in Note 34.

Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 20

‘Structured entities’. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns from

its involvement with the entity and has the ability to affect those returns through its power over the entity.

Impairment testing of investments in subsidiaries

At each reporting period end, HSBC Holdings reviews investments in subsidiaries for indicators of impairment. An impairment is recognised

when the carrying amount exceeds the recoverable amount for that investment. The recoverable amount is the higher of the investment’s fair

value less costs of disposal and its VIU, in accordance with the requirements of IAS 36. The VIU is calculated by discounting management’s

cash flow projections for the investment. The cash flows represent the free cash flows based on the subsidiary’s binding capital requirements.

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

– Management’s judgement in estimating future cash flows: The cash flow projections for each investment are based on the latest approved

plans, which include forecast capital available for distribution based on the capital requirements of the subsidiary, taking into account

minimum and core capital requirements. For the impairment test as at 31 December 2023, cash flow projections until the end of 2028 were

considered in line with our internal planning horizon. Our cash flow projections include known and observable climate-related opportunities

and costs associated with our sustainable products and operating model.

– Long-term growth rates: The long-term growth rate is used to extrapolate the free cash flows in perpetuity because of the long-term

perspective of the legal entity. The growth rate reflects long-term inflation for the country or territory within which the investment operates.

HSBC Holdings plc Annual Report and Accounts 2023 395

Financial statements

– Discount rates: The rate used to discount the cash flows is based on the cost of capital assigned to each investment, which is derived using

a CAPM and market implied cost of equity. CAPM depends on a number of inputs reflecting financial and economic variables, including the

risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s

assessment of the economic variables and management’s judgement. The discount rates for each investment are refined to reflect the rates

of inflation for the countries or territories within which the investment operates. In addition, for the purposes of testing investments for

impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with cost

of capital rates produced by external sources for businesses operating in similar markets. The impacts from climate risk are included to the

extent that they are observable in discount rates and asset prices.

As at 31 December 2023, the carrying amount of HSBC Holdings’ investments in subsidiaries was $159.5bn (2022: $167.5bn). The net year-on-

year reduction was predominantly due to the recognition of a $5.5bn impairment of HSBC Holdings’ investment in HSBC Overseas Holdings

(UK) Limited, resulting in a cumulative impairment of $10.2bn (2022: $4.7bn), and a carrying amount of $25.8bn as at 31 December 2023 (2022:

$32.8bn).

The recoverable amount of HSBC Overseas Holdings (UK) Limited is assessed as the aggregate of the recoverable amounts of its subsidiaries.

During 2023, the principal subsidiaries of HSBC Overseas Holdings (UK) Limited were HSBC North America Holdings Limited, HSBC Bank

Canada and HSBC Bank Bermuda. In October 2023, HSBC Bank Bermuda was transferred to HSBC Bank plc. As at 31 December 2023, the

adjusted net asset value of HSBC Overseas Holdings (UK) Limited fell below the carrying amount therefore management assessed that

indicators of impairment were present and an impairment test was performed. The recoverable amount reduced owing to lower projected

profits and higher projected capital requirements for HSBC North America Holdings, the transfer of HSBC Bank Bermuda to HSBC Bank plc at

its book value which stood below its assessed recoverable amount, and higher prevailing discount rates, as a result of which a $5.5bn

impairment was recognised.

As HSBC Overseas Holdings (UK) Limited has entered into a sales purchase agreement with Royal Bank of Canada to dispose of our banking

business in Canada, the sales purchase agreement has been used to support the recoverable amount of $11.0bn (2022: $10.8bn) (inclusive of

the preferred shares) under a fair value less costs of disposal basis. The fair value less costs of disposal of HSBC Bank Canada is at a $3.7bn

(2022: $3.7bn) premium to the book value recorded in HSBC Overseas Holdings (UK) Limited. In 2024, a distribution of the proceeds from the

planned sale of our banking business in Canada to HSBC Holdings from HSBC Overseas Holdings (UK) Limited could lead to a future

impairment. In respect of distributable reserves, an impairment would be offset by the dividend income recognised on the distributions from

sales proceeds.

Impairment test results

Investments

Recoverable

amount

Discount

rate

Long-term growth

rate

At 31 Dec 2023

$m % %

HSBC North America Holdings Limited 12,756 10.50 2.17

At 31 Dec 2022

HSBC North America Holdings Limited 18,363 10.00 2.22

Sensitivities of key assumptions in calculating VIU

At 31 December 2023, the recoverable amount of HSBC Overseas Holdings (UK) Limited remained sensitive to reasonably possible changes in

key assumptions impacting its principal subsidiary, HSBC North America Holdings Limited.

In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to

the model. These include the external range of observable discount rates, historical performance against forecast, and risks attached to the key

assumptions underlying cash flow.

The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for HSBC North America

Holdings Limited, the key risks attached to each, and details of a reasonably possible change to assumptions where, in the opinion of

management, these could result in a change in VIU.

Reasonably possible changes in key assumptions

Input Key assumptions Associated risks

Reasonably possible

change

Investment

HSBC North America Holdings

Limited (subsidiary of HSBC

Overseas Holdings (UK) Limited)

Free cash flows projections – Level of interest rates

and yield curves.

– Competitors’ positions

within the market.

– Strategic actions

relating to revenue

and costs are not

achieved.

– Free cash flow

projections decrease

by 10%.

Discount rate – Discount rate used is a

reasonable estimate of

a suitable market rate

for the profile of the

business.

– External evidence

arises to suggest that

the rate used is not

appropriate to the

business.

– Discount rate

decreases by 1%.

– Discount rate

increases by 1%.

Notes on the financial statements

396 HSBC Holdings plc Annual Report and Accounts 2023

Sensitivity of VIU to reasonably possible changes in key assumptions

In $bn (unless otherwise stated)

HSBC North America

Holdings Limited

At 31 December 2023

VIU 12.8

Impact on VIU

100bps decrease in the discount rate – single variable

1.6

100bps increase in the discount rate – single variable

1, 2

(1.2)

10% decrease in forecast profitability – single variable

1, 2

(1.3)

1 The recoverable amount of HSBC Overseas Holdings (UK) Limited represents the aggregate of recoverable amounts of the underlying subsidiaries.

Single variable sensitivity analysis on a single subsidiary may therefore not be representative of the aggregate impact of the change in the variable.

2 As at 31 December 2022, the impact on the VIU of HSBC North America Holdings Limited of a 100bps increase in the discount rate was $(1.7)bn and

a 10% decrease in forecast profitability was $(1.8)bn, respectively on a single variable basis.

Subsidiaries with significant non-controlling interests

2023 2022¹

Hang Seng Bank Limited

Proportion of ownership interests and voting rights held by non-controlling interests (%)

37.86 37.86

Place of business Hong Kong Hong Kong

Profit attributable to non-controlling interests 889 574

Accumulated non-controlling interests of the subsidiary 6,877 6,513

Dividends paid to non-controlling interests 490 361

Summarised financial information:

– total assets 214,321 235,630

– total liabilities 194,621 216,917

– net operating income before changes in expected credit losses and other credit impairment charges 5,210 4,379

– profit for the year 2,356 1,518

– total comprehensive income for the year 2,723 1,428

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

2 In addition to the strategic holding disclosed above, the Group held 0.09% (2022: 0.07%) shareholding as part of its trading books.

Structured entities

HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits

and investment funds, established either by HSBC or a third party.

Consolidated structured entities

Total assets of HSBC’s consolidated structured entities, split by entity type

Conduits Securitisations HSBC managed funds Other Total

$bn $bn $bn $bn $bn

At 31 Dec 2023 3.6 7.8 5.5 8.2 25.1

At 31 Dec 2022 4.2 7.2 4.8 7.5 23.7

Conduits

HSBC has established and manages two types of conduits: securities investment conduits (‘SICs’) and multi-seller conduits.

Securities investment conduits

The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.

– At 31 December 2023, Solitaire, HSBC’s principal SIC, held $1.0bn of ABSs (2022: $1.3bn). It is currently funded entirely by commercial

paper (‘CP’) issued to HSBC. At 31 December 2023, HSBC held $1.3bn of CP (2022: $1.5bn).

Multi-seller conduit

HSBC’s multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears

risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $6.1bn at 31December 2023 (2022:$6.2bn). First

loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of

secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.

Securitisations

HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset

origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically

through credit default swaps, and the structured entities issue debt securities to investors.

HSBC managed funds

HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent

in its role as investment manager, HSBC controls these funds.

Other

HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions

where it has control of the structured entity. In addition, HSBC is deemed to control anumber of third-party managed funds through its

involvement as a principal in the funds.

HSBC Holdings plc Annual Report and Accounts 2023 397

Financial statements

Unconsolidated structured entities

The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group entersinto transactions with

unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.

Nature and risks associated with HSBC interests in unconsolidated structured entities

Securitisations

HSBC managed

funds

Non-HSBC

managed funds Other Total

Total asset values of the entities ($m)

0–500 120 337 1,271 42 1,770

500–2,000 4 96 1,069 3 1,172

2,000–5,000 — 39 418 — 457

5,000–25,000 — 24 217 — 241

25,000+ — 3 11 — 14

Number of entities at 31 Dec 2023 124 499 2,986 45 3,654

$bn

Total assets in relation to HSBC’s interests in the unconsolidated

structured entities

3.2 13.9 20.7 3.3 41.1

– trading assets — 0.6 — — 0.6

– financial assets designated and otherwise mandatorily

measured at fair value

— 12.6 19.7 — 32.3

– loans and advances to customers 3.2 — 0.6 2.5 6.3

– financial investments — 0.7 0.4 — 1.1

– other assets — — — 0.8 0.8

Total liabilities in relation to HSBC’s interests in the

unconsolidated structured entities

— — — 0.3 0.3

– other liabilities — — — 0.3 0.3

Other off-balance sheet commitments 0.1 1.9 5.0 1.2 8.2

HSBC’s maximum exposure at 31 Dec 2023 3.3 15.8 25.7 4.2 49.0

Total asset values of the entities ($m)

0–500 85 338 1,321 41 1,785

500–2,000 8 102 929 4 1,043

2,000–5,000 — 28 388 — 416

5,000–25,000 — 18 206 — 224

25,000+ — 5 24 — 29

Number of entities at 31 Dec 2022 93 491 2,868 45 3,497

$bn

Total assets in relation to HSBC’s interests in the unconsolidated

structured entities

2.5 10.7 19.7 2.6 35.5

– trading assets — 0.4 0.1 — 0.5

– financial assets designated and otherwise mandatorily

measured at fair value

— 9.7 18.7 — 28.4

– loans and advances to customers 2.5 — 0.5 1.9 4.9

– financial investments — 0.6 0.4 — 1

– other assets — — — 0.7 0.7

Total liabilities in relation to HSBC’s interests in the

unconsolidated structured entities

— — — 0.4 0.4

– other liabilities — — — 0.4 0.4

Other off-balance sheet commitments 0.2 1.5 4.6 1.8 8.1

HSBC’s maximum exposure at 31 Dec 2022 2.7 12.2 24.3 4 43.2

The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss it could incur as a

result of its involvement with these entities regardless of the probability of the loss being incurred.

– For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future

losses.

– For retained and purchased investments and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying

amount of these interests at the balance sheet reporting date.

The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order to

mitigate the Group’s exposure to loss.

Securitisations

HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments

in ABSs issued by third-party structured entities.

HSBC managed funds

HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment

opportunities. Further information on funds under management is provided on page 118.

HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC may

also retain units in these funds.

Non-HSBC managed funds

HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs.

Notes on the financial statements

398 HSBC Holdings plc Annual Report and Accounts 2023

Other

HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide

finance to public and private sector infrastructure projects, and for asset and structured finance transactions.

In addition to the interests disclosed above, HSBC enters into derivative contracts, reverse repos and stock borrowing transactions with

structured entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk management

solutions.

HSBC sponsored structured entities

The amount of assets transferred to and income received from such sponsored structured entities during 2023 and 2022 was not significant.

Goodwill and intangible assets

2023 2022¹

$m $m

Goodwill 4,323 4,156

Other intangible assets

8,164 7,263

At 31 Dec 12,487 11,419

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

2 Included within other intangible assets is internally generated software with a net carrying amount of $6,895m (2022: $6,166m). During the year,

capitalisation of internally generated software was $2,306m (2022: $2,663m), reversal of impairment was $285m (2022: impairment of $125m) and

amortisation was $1,877m (2022: $1,447m).

Movement analysis of goodwill

2023 2022

$m $m

Gross amount

At 1 Jan 18,965 22,215

Exchange differences 523 (776)

Reclassified to held for sale and additions

73 (2,485)

Other (1) 11

At 31 Dec 19,560 18,965

Accumulated impairment losses

At 1 Jan (14,809) (17,182)

Exchange differences (428) 482

Reclassified to held for sale

— 1,891

At 31 Dec (15,237) (14,809)

Net carrying amount at 31 Dec 4,323 4,156

1 Includes goodwill allocated to disposal groups as a result of the sales of our retail banking operations in France and branch operations in Greece, and

planned sale of our banking business in Canada, offset by goodwill arising from the acquisition of L&T Investment Management Limited. For further

details, see Note23.

Goodwill

Impairment testing

The Group’s impairment test in respect of goodwill allocated to each cash-generating unit (‘CGU’) is performed at 1 October each year. A review

for indicators of impairment is undertaken at each subsequent quarter-end and at 31 December 2023. No indicators of impairment were

identified as part of these reviews.

Basis of the recoverable amount

The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (‘VIU’) at each respective testing date.

The VIU is calculated by discounting management’s cash flow projections for the CGU. The key assumptions used in the VIU calculation for

each individually significant CGU that is not impaired are discussed below.

Key assumptions in VIU calculation – significant CGUs at 1 October 2023

Carrying

amount at

1Oct 2023

of which

goodwill

Value in

use at

1Oct 2023

Discount

rate

Growth

rate

beyond

initial

cash flow

Carrying

amount at

1Oct2022

of which

goodwill

Value in

use at

1Oct 2022

Discount

rate

Growth

rate

beyond initial

cash flow

projections

$m $m $m % % $m $m $m % %

HSBC UK

Bank plc –

WPB

11,167 2,597 27,933 10.4 2.0 N/A N/A N/A N/A N/A

Europe –

WPB

N/A N/A N/A N/A N/A 15,215 2,643 46,596 9.9 2.0

1 Following change in the Reporting Framework the Group’s CGUs are main legal entities subdivided by global business effective 1 January 2023.

HSBC Holdings plc Annual Report and Accounts 2023 399

Financial statements

At 1 October 2023, aggregate goodwill of $1,599m (1 October 2022: $1,464m) had been allocated to CGUs that were not considered individually

significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than

goodwill.

Management’s judgement in estimating the cash flows of a CGU

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of goodwill in the next financial year,

but does consider this to be an area that is inherently judgemental. The cash flow projections for each CGU are based on forecast profitability

plans approved by the Board and minimum capital levels required to support the business operations of a CGU. The Board challenges and

endorses planning assumptions in light of internal capital allocation decisions necessary to support our strategy, current market conditions and

macroeconomic outlook. For the 1 October 2023 impairment test, cash flow projections until the end of 2028 were considered, in line with our

internal planning horizon. Key assumptions underlying cash flow projections reflect management’s outlook on interest rates and inflation, as well

as business strategy, including the scale of investment in technology and automation. Our cash flow projections include known and observable

climate-related opportunities and costs associated with our sustainable products and operating model. As required by IFRS Accounting

Standards, estimates of future cash flows exclude estimated cash inflows or outflows that are expected to arise from restructuring initiatives

before an entity has a constructive obligation to carry out the plan, and would therefore have recognised a provision for restructuring costs.

Discount rate

The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a capital asset pricing

model (‘CAPM’) and market implied cost of equity. CAPM depends on a number of inputs reflecting financial and economic variables, including

the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s

assessment of the economic variables and management’s judgement. The discount rates for each CGU are refined to reflect the rates of

inflation for the countries within which the CGU operates. In addition, for the purposes of testing goodwill for impairment, management

supplements this process by comparing the discount rates derived using the internally generated CAPM, with the cost of equity rates produced

by external sources for businesses operating in similar markets. The impacts of climate risk are included to the extent that they are observable

in discount rates and asset prices.

Long-term growth rate

The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the Group of business

units making up the CGUs. These growth rates reflect inflation for the countries within which the CGU operates or from which it derives

revenue.

Sensitivities of key assumptions in calculating VIU

At 1 October 2023, given the extent by which VIU exceeds carrying amount, the HBUK WPB CGU was not sensitive to reasonably possible

adverse changes in key assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions,

management considers the available evidence in respect of each input to the VIU calculation, such as the external range of discount rates

observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections. None of the

remaining CGUs are individually significant.

Other intangible assets

Impairment testing

Impairment of other intangible assets is assessed in accordance with our policy explained in Note 1.2(n) by comparing the net carrying amount

of CGUs containing intangible assets with their recoverable amounts. Recoverable amounts are determined by calculating an estimated VIU or

fair value, as appropriate, for each CGU. No significant impairment was recognised during the year.

Key assumptions in VIU calculation

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of other intangible assets in the next

financial year, but does consider this to be an area that is inherently judgemental. We used a number of assumptions in our VIU calculation, in

accordance with the requirements of IAS 36:

– Management’s judgement in estimating future cash flows: We considered past business performance, current market conditions and our

macroeconomic outlook to estimate future earnings. As required by IFRS Accounting Standards, estimates of future cash flows exclude

estimated cash inflows or outflows that are expected to arise from restructuring initiatives before an entity has a constructive obligation to

carry out the plan, and would therefore have recognised a provision for restructuring costs. For some businesses, this means that the benefit

of certain strategic actions may not be included in the impairment assessment, including capital releases. Our cash flow projections include

known and observable climate-related opportunities and costs associated with our sustainable products and operating model.

– Long-term growth rates: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective

of the businesses within the Group.

– Discount rates: Rates are based on a combination of CAPM and market-implied calculations considering market data for the businesses and

geographies in which the Group operates. The impacts of climate risk are included to the extent that they are observable in discount rates

and asset prices.

Sensitivity of estimates relating to non-financial assets

As explained in Note 1.2(a), estimates of future cash flows for CGUs are made in the review of goodwill and non-financial assets for impairment.

Non-financial assets include other intangible assets shown above, and owned property, plant and equipment and right-of-use assets (see

Note22). The most significant sources of estimation uncertainty are in respect of the goodwill balances disclosed above. There are no non-

financial asset balances relating to individual CGUs which involve estimation uncertainty that represents a significant risk of resulting in a

material adjustment to the results and financial position of the Group within the next financial year.

Non-financial assets are widely distributed across CGUs within the legal entities of the Group, including Corporate Centre assets that cannot be

allocated to CGUs and are therefore tested for impairment at consolidated level. The recoverable amounts of other intangible assets, owned

property, plant and equipment, and right-of-use assets cannot be lower than individual asset fair values less costs to dispose, where relevant. At

31 December 2023 none of the CGUs were sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable

amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of

each input to the VIU calculation, such as the external range of discount rates observable, historical performance against forecast and risks

attaching to the key assumptions underlying cash flow projections.

Notes on the financial statements

400 HSBC Holdings plc Annual Report and Accounts 2023

Prepayments, accrued income and other assets

2023 2022¹

$m $m

Prepayments and accrued income 13,854 10,279

Settlement accounts 32,853 19,565

Cash collateral and margin receivables 57,058 63,421

Bullion 13,701 15,752

Endorsements and acceptances 7,939 8,407

Insurance contract assets (Note 4) 252 136

Reinsurance contract assets 4,728 4,310

Employee benefit assets (Note 5) 7,750 7,282

Right-of-use assets 2,456 2,219

Owned property, plant and equipment 10,478 10,365

Other accounts 14,186 14,413

At 31 Dec 165,255 156,149

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

Prepayments, accrued income and other assets include $122,863m (2022: $112,464m) of financial assets, the majority of which are measured

at amortised cost.

Assets held for sale, liabilities of disposal groups held for sale and

business acquisitions

2023 2022

$m $m

Held for sale at 31 Dec

Disposal groups 115,836 118,055

Unallocated impairment losses

(1,975) (2,385)

Non-current assets held for sale 273 249

Assets held for sale 114,134 115,919

Liabilities of disposal groups held for sale 108,406 114,597

1 This represents impairment losses in excess of the carrying value of the non-current assets, excluded from the measurement scope of IFRS 5.

Disposal groups and other planned disposals

Sale of our retail banking operations in France

On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking business in France to CCF, a subsidiary of Promontoria

MMB SAS (‘My Money Group’). The sale also included HSBC Continental Europe’s 100% ownership interest in HSBC SFH (France) and its 3%

ownership interest in Crédit Logement.

In the first quarter of 2023, the sale had become less certain, as a result of which we recognised a $2.1bn partial reversal of the impairment loss

recognised in 2022, when the disposal group was classified as held for sale. In the fourth quarter of 2023, following the receipt of regulatory

approvals and the satisfaction of other relevant conditions, we reclassified the disposal group as held for sale, and it was subsequently

remeasured at the lower of the carrying amount and fair value less costs to sell. This resulted in the reinstatement of a €1.8bn ($2.0bn) pre-tax

impairment loss reflecting the final terms of the sale, giving rise to a net reversal of impairment recognised in other operating income in the year

of $0.1bn.

Upon completion and in accordance with the terms of the sale, HSBC Continental Europe received a €0.1bn ($0.1bn) profit participation interest

in the ultimate holding company of My Money Group. The associated impacts on initial recognition of this stake at fair value were recognised as

part of the pre-tax loss on disposal. In addition, we recognised the reversal of a €0.4bn ($0.4bn) deferred tax liability, which had arisen as a

consequence of the temporary difference in tax and accounting treatment in respect of the provision for loss on disposal, which was deductible

in the French tax return in 2021.

In accordance with the terms of the sale, HSBC Continental Europe retained a portfolio of €7.1bn ($7.8bn) consisting of home and certain other

loans, in respect of which it may consider on-sale opportunities at a suitable time, and the CCF brand, which it licensed to the buyer under a

long-term licence agreement. Additionally, HSBC Continental Europe’s subsidiaries, HSBC Assurances Vie (France) and HSBC Global Asset

Management (France), have entered into distribution agreements with the buyer. Ongoing costs associated with the retention of the home and

certain other loans, net of income on distribution agreements and the brand licence, are estimated to have an after-tax loss impact of €0.1bn

($0.1bn) in 2024 based on expected funding rates.

Planned sale of our banking business in Canada

On 29 November 2022, HSBC Holdings plc announced that its wholly-owned subsidiary, HSBC Overseas Holdings (UK) Limited, had entered

into an agreement for the sale of its banking business in Canada to the Royal Bank of Canada. Completion of the transaction is expected to

occur in the first quarter of 2024 and the required governmental approvals have been obtained. The majority of the estimated gain on sale of

$5.2bn (as at 31 December 2023) will be recognised on completion, reduced by earnings recognised by the Group in the period to completion.

There would be no tax on the gain recognised at completion. This estimated gain would also have been reduced by $0.3bn in fair value losses

recognised on the related foreign exchange hedges in 2023. The estimated pre-tax profit on the sale will be recognised through a combination

of the consolidation of HSBC Canada’s results into the Group’s financial statements (between the 30 June 2022 net asset reference date and

until completion), and the remaining gain on sale recognised at completion. At 31 December 2023, total assets of $87.9bn and total liabilities of

$81.5bn met the criteria to be classified as held for sale in accordance with IFRS 5.

HSBC Holdings plc Annual Report and Accounts 2022 401

Financial statements

Planned sale of our business in Russia

On 30 June 2022, following a strategic review of our business in Russia, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc)

entered into an agreement for the sale of its wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company). In 2022, a $0.3bn

impairment loss on the planned sale was recognised, upon classification as held for sale in accordance with IFRS 5. As at 31 December 2023,

following US sanctions designation of the buyer, the outcome of the planned sale became less certain. This resulted in the reversal of $0.2bn of

the previously recognised loss, as the business was no longer classified as held for sale. However, owing to restrictions impacting the

recoverability of assets in Russia, we recognised charges of $0.2bn in other operating income. Completion of the planned sale remains subject

to regulatory approval. On completion, accumulated foreign currency translation reserves will be recycled to the income statement.

Our branch operations in Greece

On 24 May 2022, HSBC Continental Europe signed a sale and purchase agreement for the sale of its branch operations in Greece to Pancreta

Bank SA. In the second quarter of 2022, we recognised a loss of $0.1bn upon reclassification as held for sale in accordance with IFRS 5. At

completion on 28 July 2023, the disposal group included $0.3bn of loans and advances to customers and $1.1bn of customer accounts.

Merger of our business in Oman

In November 2022, HSBC Bank Oman SAOG entered into a binding merger agreement with Sohar International Bank SAOG, under which the

two banks agreed to take the necessary steps to implement a merger by incorporation, whereby HSBC Bank Oman would merge into Sohar

International Bank. Following regulatory and shareholder approvals, the merger was completed on 17 August 2023 by way of dissolution and

transfer of all the assets and liabilities of HSBC Bank Oman to Sohar International Bank, with the shareholders of HSBC Bank Oman receiving

the consideration in cash and shares in Sohar International Bank. Separately, HSBC Bank Middle East Limited is in the process of establishing a

new wholesale banking branch in Oman subject to regulatory approvals.

Our New Zealand loan portfolio

In August 2023, the Hongkong and Shanghai Banking Corporation Limited (acting through its New Zealand branch) entered into an agreement

with Pepper New Zealand Limited, a wholly-owned subsidiary of Pepper Money Limited, to sell its New Zealand retail mortgage loan portfolio.

The sale was classified as held for sale in the third quarter of 2023 and was completed on 1 December 2023.

Our retail business in Mauritius

In November 2023, the Hongkong and Shanghai Banking Corporation Limited (acting through its Mauritius branch) entered into an agreement

with ABSA Bank (Mauritius) Limited, a wholly-owned subsidiary of ABSA Bank Group Limited, to sell its Wealth and Personal Banking business.

The sale is expected to complete in the second half of 2024 subject to regulatory approvals.

At 31 December 2023, the major classes of assets and associated liabilities of disposal groups held for sale, excluding allocated impairment

losses, were as follows:

Canada

Retail banking

operations in France

Other

Total

$m $m $m $m

Assets of disposal groups held for sale

Cash and balances at central banks

5,370 226 — 5,596

Trading assets 2,465 — — 2,465

Financial assets designated and otherwise mandatorily measured at fair value

through profit or loss

15 49 — 64

Derivatives 528 — — 528

Loans and advances to banks

154 10,333 — 10,487

Loans and advances to customers 56,129 16,902 254 73,285

Reverse repurchase agreements – non-trading 2,723 — — 2,723

Financial investments

16,978 33 17,011

Goodwill 225 — 225

Prepayments, accrued income and other assets 3,318 132 2 3,452

Total assets at 31 Dec 2023 87,905 27,675 256 115,836

Liabilities of disposal groups held for sale

Trading liabilities 1,417 — — 1,417

Deposits by banks 78 — — 78

Customer accounts 63,001 22,307 642 85,950

Repurchase agreements – non-trading 2,768 — — 2,768

Financial liabilities designated at fair value — 2,370 — 2,370

Derivatives 608 7 — 615

Debt securities in issue 7,707 1,377 — 9,084

Subordinated liabilities 8 — — 8

Accruals, deferred income and other liabilities 5,916 196 4 6,116

Total liabilities at 31 Dec 2023 81,503 26,257 646 108,406

Expected date of completion First quarter of 2024 1 January 2024

Operating segment All global businesses WPB

1 Includes balances classified as held for sale in respect of the planned sale of our retail business in Mauritius and planned sale of our global hedge fund

administration business across several markets.

2 Under the financial terms of the sale of our retail banking operations in France, HSBC Continental Europe will transfer the business with a net asset

value of €1.7bn ($1.8bn) for a consideration of €1. Any required increase to the net asset value of the business to achieve this will be satisfied by the

inclusion of additional cash. Based upon the net liabilities of the disposal group at 31 December 2023, HSBC would be expected to include a cash

contribution of $11bn, of which $10.5bn was reclassified as held for sale at 31 December 2023 (‘Loans and advances to banks’, $10.3bn, ‘Cash and

balances at central bank’, $0.2bn).

3 Includes financial investments measured at fair value through other comprehensive income of $9.4bn and debt instruments measured at amortised

cost of $7.6bn.

Notes on the financial statements

402 HSBC Holdings plc Annual Report and Accounts 2023

At 31 December 2022, the major classes of assets and associated liabilities of disposal groups held for sale, excluding allocated impairment

losses, were as follows:

Canada

Retail banking

operations in France

Other Total

$m $m $m $m

Assets of disposal groups held for sale

Cash and balances at central banks 4,664 71 1,811 6,546

Trading assets 3,168 — 8 3,176

Financial assets designated and otherwise mandatorily measured at fair value

through profit or loss

13 47 1 61

Derivatives 866 — — 866

Loans and advances to banks 99 — 154 253

Loans and advances to customers 55,197 25,029 350 80,576

Reverse repurchase agreements – non-trading 4,396 — 250 4,646

Financial investments

17,243 — 106 17,349

Goodwill 225 — — 225

Prepayments, accrued income and other assets 4,245 75 26 4,357

Total assets at 31 Dec 2022 90,127 25,222 2,706 118,055

Liabilities of disposal groups held for sale

Trading liabilities 2,751 — 3 2,754

Deposits by banks 62 — 2 64

Customer accounts 60,606 22,348 2,320 85,274

Repurchase agreements – non-trading 3,266 — — 3,266

Financial liabilities designated at fair value — 3,523 — 3,523

Derivatives 806 7 — 813

Debt securities in issue 11,602 1,326 — 12,928

Subordinated liabilities 8 — — 8

Accruals, deferred income and other liabilities 5,727 159 81 5,967

Total liabilities at 31 Dec 2022 84,828 27,363 2,406 114,597

Expected date of completion Second half of 2023 Second half of 2023

Operating segment All global businesses WPB

1 Includes financial investments measured at fair value through other comprehensive income of $11.2bn and debt instruments measured at amortised

cost of $6.2bn.

Business acquisitions

Acquisition of Silicon Valley Bank UK Limited

In March 2023, HSBC UK Bank plc acquired Silicon Valley Bank UK Limited (‘SVB UK’), and in June 2023 changed its legal entity name to HSBC

Innovation Bank Limited. The acquisition was funded from existing resources and brought the staff, assets and liabilities of SVB UK into the

HSBC portfolio. On acquisition, we performed a preliminary assessment of the fair value of the assets and liabilities purchased. We established

an opening balance sheet on 13 March 2023 and applied the result of the fair value assessment, which resulted in a reduction in net assets of

$0.2bn. The provisional gain on acquisition of $1.6bn represents the difference between the consideration paid of £1 and the net assets

acquired. Further due diligence has been performed post-acquisition, resulting in the recognition of an additional gain of $0.1bn at 30 September

2023, as required by IFRS 3 ‘Business Combinations’.

HSBC Innovation Bank Limited contributed $0.5bn of revenue and $0.2bn to the Group profit after tax for the period from 13 March 2023 to

31December 2023. As per the disclosure requirements set out in IFRS 3 ‘Business Combinations’, if HSBC Innovation Bank Limited had been

acquired on 1 January 2023, management estimates that for the 12 months to 31 December 2023, consolidated revenue would have been

$66bn and consolidated profit after tax would have been $25bn. In determining these amounts, management has assumed that the previously

determined fair value adjustments, which arose on acquisition would have been the same if the acquisition had occurred on 1 January 2023.

The details of the business combination at acquisition are as follows:

13 Mar

2023

Fair value of assets acquired 11,367

Fair value of liabilities acquired (9,776)

Fair value of net assets acquired 1,591

Provisional gain on acquisition 1,591

Consideration transferred settled in cash —

Cash and cash equivalents acquired 1,243

Net cash inflow on acquisition 1,243

HSBC Holdings plc Annual Report and Accounts 2023 403

Financial statements

Acquisition of Citibank China’s wealth management portfolio

In October 2023, HSBC Bank (China) Company Limited, a wholly-owned subsidiary of The Hongkong and Shanghai Banking Corporation Limited,

entered into an agreement to acquire Citibank China’s retail wealth management portfolio in mainland China. The portfolio comprises assets

under management and deposits and the associated wealth customers. Upon completion, the acquired business will be integrated into HSBC

Bank China’s Wealth and Personal Banking operations. The transaction is expected to complete in the first half of 2024.

Acquisition of Silkroad Property Partners Singapore

In October 2023, HSBC Global Asset Management Singapore Limited entered into an agreement to acquire 100% of the shares of Silkroad

Property Partners Pte Ltd (‘Silkroad’) and for HSBC Global Asset Management Limited to acquire Silkroad’s affiliated General Partner entities.

Silkroad is a Singapore headquartered Asia-Pacific-focused, real estate investment manager. The acquisition was completed on 31 January

2024.

Trading liabilities

2023 2022

$m $m

Deposits by banks

6,779 9,332

Customer accounts

8,955 10,724

Other debt securities in issue (Note 26) 27 978

Other liabilities – net short positions in securities 57,389 51,319

At 31 Dec 73,150 72,353

1 ‘Deposits by banks’ and ‘Customer accounts’ include fair value repos, stock lending and other amounts.

Financial liabilities designated at fair value

HSBC

2023 2022¹

$m $m

Deposits by banks and customer accounts

21,043 19,171

Liabilities to customers under investment contracts 5,103 5,374

Debt securities in issue (Note 26) 103,803 93,140

Subordinated liabilities (Note 29) 11,477 9,636

At 31 Dec 141,426 127,321

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

2 Structured deposits placed at HSBC Bank USA are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000

per depositor.

The carrying amount of financial liabilities designated at fair value was $4,421m less than the contractual amount at maturity (2022: $8,124m

less). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $1,286m (2022: profit of $234m).

HSBC Holdings

2023 2022

$m $m

Debt securities in issue (Note 26)

35,189 25,423

Subordinated liabilities (Note 29)

8,449 6,700

At 31 Dec 43,638 32,123

The carrying amount of financial liabilities designated at fair value was $246m less than the contractual amount at maturity (2022:$2,405mless).

The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $682m (2022:$516m).

Debt securities in issue

HSBC

2023 2022

$m $m

Bonds and medium-term notes 160,632 145,240

Other debt securities in issue 37,115 27,027

Total debt securities in issue 197,747 172,267

Included within:

– trading liabilities (Note 24) (27) (978)

– financial liabilities designated at fair value (Note 25) (103,803) (93,140)

At 31 Dec 93,917 78,149

Notes on the financial statements

404 HSBC Holdings plc Annual Report and Accounts 2023

HSBC Holdings

2023 2022

$m $m

Debt securities 100,428 92,361

Included within:

– financial liabilities designated at fair value (Note 25) (35,189) (25,423)

At 31 Dec 65,239 66,938

Accruals, deferred income and other liabilities

2023 2022

$m $m

Accruals and deferred income 16,814 12,605

Settlement accounts 28,423 18,178

Cash collateral and margin payables 56,832 70,298

Endorsements and acceptances 7,911 8,379

Employee benefit liabilities (Note 5) 1,160 1,096

Reinsurance contract liabilities 819 748

Lease liabilities 2,813 2,767

Other liabilities 21,834 20,242

At 31 Dec 136,606 134,313

1 Accruals, deferred income and other liabilities include $129,401m (2022: $125,957m) of financial liabilities, the majority of which are measured at

amortised cost.

2 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

Provisions

Restructuring

costs

Legal

proceedings

and regulatory

matters

Customer

remediation

Other

provisions Total

$m $m $m $m $m

Provisions (excluding contractual commitments)

At 1 Jan 2023 445 409 195 397 1,446

Additions 255 236 37 170 698

Amounts utilised (288) (231) (69) (68) (656)

Unused amounts reversed (149) (30) (41) (95) (315)

Exchange and other movements 21 (4) 8 16 41

At 31 Dec 2023 284 380 130 420 1,214

Contractual commitments

At 1 Jan 2023 512

Net change in expected credit loss provision and other movements 15

At 31 Dec 2023 527

Total provisions

At 31 Dec 2022 1,958

At 31 Dec 2023 1,741

Provisions (excluding contractual commitments)

At 1 Jan 2022 383 619 386 558 1,946

Additions 434 271 60 206 971

Amounts utilised (288) (393) (106) (168) (955)

Unused amounts reversed (87) (82) (109) (125) (403)

Exchange and other movements 3 (6) (36) (74) (113)

At 31 Dec 2022 445 409 195 397 1,446

Contractual commitments

At 1 Jan 2022 620

Net change in expected credit loss provision and other movements (108)

At 31 Dec 2022 512

Total provisions

At 31 Dec 2021 2,566

At 31 Dec 2022 1,958

1 Contractual commitments include the expected credit loss provision in relation to off-balance sheet financial guarantee contracts and commitments

where HSBC has become party to an irrevocable commitment, as defined under IFRS 9 ‘Financial Instruments’; and provisions for performance and

other guarantee contracts.

Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 36. Legal proceedings include civil court, arbitration or tribunal

proceedings brought against HSBC companies (whether by way of claim or counterclaim); or civil disputes that may, if not settled, result in

court, arbitration or tribunal proceedings. ‘Regulatory matters’ refers to investigations, reviews and other actions carried out by, or in response

to, the actions of regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

HSBC Holdings plc Annual Report and Accounts 2023 405

Financial statements

Customer remediation refers to HSBC’s activities to compensate customers for losses or damages associated with a failure to comply with

regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry

developments in sales practices, and is not necessarily initiated by regulatory action.

For further details of the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in ‘Contractual commitments’,

see Note 34. Further analysis of the movement in the expected credit loss provision is disclosed within the ‘Reconciliation of changes in gross

carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees‘

table on page 169.

Brazil PIS and COFINS tax matters

Beginning in the late 1990s, HSBC Bank Brasil S.A. – Banco Múltiplo (‘HSBC Brazil’) and other financial services firms brought legal proceedings

in Brazil challenging the assessment of PIS and COFINS taxes, which are federal taxes imposed on gross revenues earned by legal entities in

Brazil. The Supreme Court of Brazil selected three cases – one involving an insurer, in 2007, and two involving other banks, in 2011 – to set

standards that would apply to all of these proceedings. In June 2023, the court ruled against the financial services firms in all three cases. The

standards set by the court in this ruling have not yet been applied to HSBC Brazil’s legacy cases, liability for which remained with HSBC after

the sale of HSBC’s operations in Brazil to Bradesco in 2016. There are many factors that may affect the range of outcomes and any resulting

financial impact for HSBC. Based upon the information currently available, a provision was recognised in respect of one legacy case. The

remaining additional tax liability subject to challenge on all legacy PIS and COFINS cases is up to $0.4bn.

Subordinated liabilities

HSBC’s subordinated liabilities

2023 2022

$m $m

At amortised cost 24,954 22,290

– subordinated liabilities 23,149 20,547

– preferred securities 1,805 1,743

Designated at fair value (Note 25) 11,477 9,636

– subordinated liabilities 11,477 9,636

– preferred securities — —

At 31 Dec 36,431 31,926

Issued by HSBC subsidiaries 4,154 6,094

Issued by HSBC Holdings 32,277 25,832

Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and

redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at

the first call date, coupons payable may reset or become floating rate based on relevant market rates. Onsubordinated liabilities other than

floating rate notes, interest is payable at fixed rates of up to 10.176%.

The balance sheet amounts disclosed in the following table are presented on an IFRS basis and do not reflect the amount that the instruments

contribute to regulatory capital, principally due to regulatory amortisation and regulatory eligibility limits.

HSBC’s subordinated liabilities: subsidiaries

2023 2022

$m $m

Additional tier 1 capital securities issued by HSBC subsidiaries 1,672 1,584

Tier 2 securities issued by HSBC subsidiaries

– Tier 2 securities issued by HSBC Bank plc 764 2,427

– Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Limited — 400

– Tier 2 securities issued by HSBC Bank USA Inc 223 223

– Tier 2 securities issued by HSBC Bank USA N.A. 1,449 1,405

– Tier 2 securities issued by HSBC Bank Canada

— —

Securities issued by other HSBC subsidiaries 46 55

Subordinated liabilities issued by HSBC subsidiaries at 31 Dec 4,154 6,094

1 Liability accounts for HSBC Bank Canada have been reclassified to ‘Liabilities of disposal groups held for sale’.

HSBC Holdings’ subordinated liabilities

2023 2022

$m $m

At amortised cost 24,439 19,727

Designated at fair value (Note 25)

8,449 6,700

At 31 Dec 32,888 26,427

HSBC Holdings’ subordinated liabilities in issue

2023 2022

$m $m

Tier 2 securities issued by HSBC Holdings

Amounts owed to third parties 31,975 25,527

Amounts owed to HSBC undertakings 913 900

Subordinated liabilities issued by HSBC Holdings at 31 Dec 32,888 26,427

Notes on the financial statements

406 HSBC Holdings plc Annual Report and Accounts 2023

Guaranteed by HSBC Holdings or HSBC Bank plc

Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these were

lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualified as additional tier 1 capital for

HSBC under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. The capital security guaranteed by HSBC

Bank plc also qualified as additional tier1 capital for HSBC Bank plc (on a solo and a consolidated basis) under CRRII until 31 December 2021 by

virtue of the same grandfathering process. Since 31 December 2021, these securities have no longer qualified as regulatory capital for HSBC or

HSBC Bank plc.

These preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and

distributions upon liquidation of the relevant issuer that are equivalent to the rights that they would have had if they had purchased non-

cumulative perpetual preference shares ofthe relevant issuer. There are limitations on the payment of distributions if such payments are

prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy requirements, or

if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).

HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying distributions on the

preferred securities in full, they will not pay dividends or other distributions in respect oftheir ordinary shares, or repurchase or redeem their

ordinary shares, until the distribution on the preferred securities has been paid in full.

If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required or if the Directors expect it to do so in the

near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings, the holders’

interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares issued by HSBC

Holdings that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.

If the preferred securities guaranteed by HSBC Bank plc are outstanding in November 2048, or if the total capital ratio of HSBC Bank plc (on a

solo or consolidated basis) falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that

proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders’ interests in the preferred

security guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC Bank plc that have economic terms

which are in all material respects equivalent to the preferred security and its guarantee.

Tier 2 securities

Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital

securities are included within HSBC’s regulatory capital base as tier 2 capital under CRR II, either as fully eligible capital or by virtue of the

application of grandfathering provisions. In accordance with CRR II, the capital contribution of all tier 2 securities is amortised for regulatory

purposes in their final five years before maturity.

Maturity analysis of assets, liabilities and off-balance sheet commitments

The table on page 408 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual

maturity at the balance sheet date. These balances are included in the maturity analysis as follows:

– Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the

‘Due not more than 1 month’ time bucket because trading balances are typically held for short periods of time.

– Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5years’ time bucket.

Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the instrument is entitled

to give. Where there is no contractual notice period, undated or perpetual contracts are included in the ‘Dueover 5 years’ time bucket.

– Non-financial assets and liabilities with no contractual maturity are included in the ‘Due over 5 years’ time bucket.

– Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual

maturity of the underlying instruments and not on the basis of the disposal transaction.

– Liabilities under insurance contracts included in ‘other financial liabilities’ are irrespective of contractual maturity included in the ‘Due over 5

years’ time bucket in the maturity table provided below. An analysis of the present value of expected future cash flows of insurance contract

liabilities and contractual service margin is provided on page 411. Liabilities under investment contracts areclassified in accordance with their

contractual maturity. Undated investment contracts are included in the ‘Due over 5 years’ time bucket, although such contracts are subject

to surrender and transfer options by the policyholders.

– Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.

HSBC Holdings plc Annual Report and Accounts 2023 407

Financial statements

HSBC

Maturity analysis of assets, liabilities and off-balance sheet commitments

Due not

than

1 month

Due over

1 month

but not

than

3 months

Due over

3 months

but not

than

6 months

Due over

6 months

but not

than

9 months

Due over

9 months

but not

than

1 year

Due over

1 year

but not

than

2 years

Due over

2 years

but not

than

5 years

Due over

5 years Total

$m $m $m $m $m $m $m $m $m

Financial assets

Cash and balances at central banks 285,868 — — — — — — — 285,868

Items in the course of collection from other

banks

6,342 — — — — — — — 6,342

Hong Kong Government certificates of

indebtedness

42,024 — — — — — — — 42,024

Trading assets 284,865 2,010 637 363 555 165 564 — 289,159

Financial assets designated or otherwise

mandatorily measured at fair value

5,530 697 821 753 581 4,839 11,917 85,505 110,643

Derivatives 227,343 138 134 71 35 383 570 1,040 229,714

Loans and advances to banks 76,524 18,662 6,487 2,689 3,281 2,756 2,328 175 112,902

Loans and advances to customers 142,803 66,425 52,218 40,135 36,323 94,206 175,381 331,044 938,535

– personal 44,105 9,558 6,960 6,422 6,127 19,606 54,365 297,512 444,655

– corporate and commercial 83,281 50,268 38,250 24,685 24,566 61,612 106,598 30,592 419,852

– financial 15,417 6,599 7,008 9,028 5,630 12,988 14,418 2,940 74,028

Reverse repurchase agreements – non-trading 164,826 43,893 23,840 6,708 5,126 6,113 1,711 — 252,217

Financial investments 48,969 69,816 44,493 16,348 18,603 46,124 106,117 92,293 442,763

Assets held for sale

39,882 2,929 7,041 4,176 3,261 17,085 33,015 7,943 115,332

Accrued income and other financial assets 108,138 6,574 4,404 550 698 220 764 1,513 122,861

Financial assets at 31 Dec 2023 1,433,114 211,144 140,075 71,793 68,463 171,891 332,367 519,513 2,948,360

Non-financial assets — — — — — — — 90,317 90,317

Total assets at 31 Dec 2023 1,433,114 211,144 140,075 71,793 68,463 171,891 332,367 609,830 3,038,677

Off-balance sheet commitments received

Loan and other credit-related commitments 39,836 — — — — — — — 39,836

Financial liabilities

Hong Kong currency notes in circulation 42,024 — — — — — — — 42,024

Deposits by banks 52,747 2,758 2,324 381 94 1,458 13,064 337 73,163

Customer accounts 1,343,858 138,117 78,611 20,832 17,724 7,785 4,616 104 1,611,647

– personal 621,112 84,909 61,286 14,794 12,465 5,507 2,742 2 802,817

– corporate and commercial 545,207 43,562 14,525 4,605 3,393 2,165 1,527 92 615,076

– financial 177,539 9,646 2,800 1,433 1,866 113 347 10 193,754

Repurchase agreements – non-trading 158,882 10,311 1,759 300 847 1 — — 172,100

Items in the course of transmission to other

banks

7,295 — — — — — — — 7,295

Trading liabilities 66,548 6,302 300 — — — — — 73,150

Financial liabilities designated at

fair value

22,080 8,366 7,823 7,197 6,239 16,679 39,497 33,545 141,426

– debt securities in issue: covered bonds — — — — — — — — —

– debt securities in issue: unsecured 10,383 2,760 5,748 6,225 5,390 14,090 34,757 23,898 103,251

– subordinated liabilities and preferred

securities

— 1,995 — — — 1,471 3,429 4,581 11,476

– other 11,697 3,611 2,075 972 849 1,118 1,311 5,066 26,699

Derivatives 233,134 113 25 9 47 73 1,223 148 234,772

Debt securities in issue 6,891 6,664 10,816 6,896 6,427 6,317 27,452 22,454 93,917

– covered bonds — — — — — — 1,273 — 1,273

– otherwise secured 447 44 62 58 55 188 861 1,679 3,394

– unsecured 6,444 6,620 10,754 6,838 6,372 6,129 25,318 20,775 89,250

Liabilities of disposal groups held for sale

69,868 5,231 5,479 6,728 6,541 4,730 7,918 1,511 108,006

Accruals and other financial liabilities 104,264 11,827 6,007 1,205 1,414 1,053 1,491 2,137 129,398

Subordinated liabilities — 13 — — — 1,790 897 22,254 24,954

Total financial liabilities at 31 Dec 2023 2,107,591 189,702 113,144 43,548 39,333 39,886 96,158 82,490 2,711,852

Non-financial liabilities — — — — — — — 134,215 134,215

Total liabilities at 31 Dec 2023 2,107,591 189,702 113,144 43,548 39,333 39,886 96,158 216,705 2,846,067

Off-balance sheet commitments given

Loan and other credit-related commitments 895,140 95 126 72 171 439 807 300 897,150

– personal 256,272 21 30 46 107 279 745 192 257,692

– corporate and commercial 472,507 74 26 26 64 160 62 108 473,027

– financial 166,361 — 70 — — — — — 166,431

Notes on the financial statements

408 HSBC Holdings plc Annual Report and Accounts 2023

Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)

Due not

than

1 month

Due over

1 month

but not

than

3 months

Due over

3 months

but not

than

6 months

Due over

6 months

but not

more than

9 months

Due over

9 months

but not

more than

1 year

Due over

1 year

but not

more than

2 years

Due over

2 years

but not

more than

5 years

Due over

5 years Total

$m $m $m $m $m $m $m $m $m

Financial assets

Cash and balances at central banks 327,002 — — — — — — — 327,002

Items in the course of collection from other

banks

7,297 — — — — — — — 7,297

Hong Kong Government certificates of

indebtedness

43,787 — — — — — — — 43,787

Trading assets 213,234 1,333 1,343 338 425 808 222 390 218,093

Financial assets designated at fair value 3,282 718 1,369 1,178 479 1,967 13,353 77,755 100,101

Derivatives 281,724 132 29 21 65 261 1,052 875 284,159

Loans and advances to banks 72,240 13,965 8,323 860 2,328 3,058 3,569 132 104,475

Loans and advances to customers 139,934 75,486 58,951 35,633 33,730 99,933 173,076 306,818 923,561

– personal 41,834 9,141 6,659 5,745 5,773 18,326 51,050 273,487 412,015

– corporate and commercial 84,955 60,067 45,695 24,430 22,629 68,473 108,418 30,231 444,898

– financial 13,145 6,278 6,597 5,458 5,328 13,134 13,608 3,100 66,648

Reverse repurchase agreements – non-trading 171,173 51,736 16,164 5,840 2,776 3,999 2,066 — 253,754

Financial investments 46,493 79,309 30,722 11,798 13,067 40,710 67,951 74,676 364,726

Assets held for sale

33,781 3,755 3,452 3,044 3,263 15,369 40,017 14,697 117,378

Accrued income and other financial assets 99,113 6,042 3,766 620 703 543 302 1,295 112,384

Financial assets at 31 Dec 2022 1,439,060 232,476 124,119 59,332 56,836 166,648 301,608 476,638 2,856,717

Non-financial assets — — — — — — — 92,569 92,569

Total assets at 31 Dec 2022 1,439,060 232,476 124,119 59,332 56,836 166,648 301,608 569,207 2,949,286

Off-balance sheet commitments received

Loan and other credit-related commitments 27,340 — — — — — — — 27,340

Financial liabilities

Hong Kong currency notes in circulation 43,787 — — — — — — — 43,787

Deposits by banks 46,994 359 3,510 205 136 1,455 13,737 326 66,722

Customer accounts 1,388,297 93,108 47,712 14,244 17,295 4,719 4,607 321 1,570,303

– personal 657,413 55,252 35,430 10,431 12,374 2,835 2,351 2 776,088

– corporate and commercial 555,539 31,624 10,385 3,080 3,824 1,667 2,146 274 608,539

– financial 175,345 6,232 1,897 733 1,097 217 110 45 185,676

Repurchase agreements – non-trading 121,193 3,804 685 170 645 1,250 — — 127,747

Items in the course of transmission to other

banks

7,864 — — — — — — — 7,864

Trading liabilities 66,027 5,668 281 113 113 116 35 — 72,353

Financial liabilities designated at fair value 16,430 7,398 6,562 4,308 5,325 19,287 34,886 33,125 127,321

– debt securities in issue: covered bonds — — — — — — — — —

– debt securities in issue: unsecured 7,056 3,620 4,793 3,157 4,288 16,234 29,941 23,510 92,599

– subordinated liabilities and preferred

securities

— — — — — 1,971 3,675 3,990 9,636

– other 9,374 3,778 1,769 1,151 1,037 1,082 1,270 5,625 25,086

Derivatives 284,412 73 18 46 57 171 849 136 285,762

Debt securities in issue 4,514 7,400 7,476 4,745 3,585 9,198 19,240 21,991 78,149

– covered bonds — — — — — — 601 — 601

– otherwise secured 705 28 40 38 36 124 656 1,346 2,973

– unsecured 3,809 7,372 7,436 4,707 3,549 9,074 17,983 20,645 74,575

Liabilities of disposal groups held for sale

76,928 4,342 5,374 6,599 8,606 2,343 8,653 1,479 114,324

Accruals and other financial liabilities 104,295 9,576 4,776 967 1,564 1,028 2,016 1,725 125,947

Subordinated liabilities — — 11 160 — — 1,689 20,430 22,290

Total financial liabilities at 31 Dec 2022 2,160,741 131,728 76,405 31,557 37,326 39,567 85,712 79,533 2,642,569

Non-financial liabilities — — — — — — — 121,520 121,520

Total liabilities at 31 Dec 2022 2,160,741 131,728 76,405 31,557 37,326 39,567 85,712 201,053 2,764,089

Off-balance sheet commitments given

Loan and other credit-related commitments 825,781 184 75 59 210 242 975 328 827,854

– personal 242,953 2 3 — 110 199 811 300 244,378

– corporate and commercial 449,843 176 72 59 84 43 163 28 450,468

– financial 132,985 6 — — 16 — 1 — 133,008

1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data have been restated

accordingly.

2 Unallocated impairment losses in relation to disposal groups of $2.0bn (2022: $2.4bn) and non-financial assets of $0.9bn (2022: $1bn) that are

presented within assets held for sale on the balance sheet have been included within non-financial assets in the table above.

3 A total of $0.4bn (2022: $0.3bn) of non-financial liabilities that are presented within liabilities of disposal groups held for sale on the balance sheet have

been included within non-financial liabilities in the table above.

HSBC Holdings plc Annual Report and Accounts 2023 409

Financial statements

HSBC Holdings

Maturity analysis of assets, liabilities and off-balance sheet commitments

Due not

than

1 month

Due over

1 month

but not

more than

3 months

Due over

3 months

but not

more than

6 months

Due over

6 months

but not

more than

9 months

Due over

9 months

but not

more than

1 year

Due over

1 year

but not

more than

2 years

Due over

2 years

but not

more than

5 years

Due

over

5 years Total

$m $m $m $m $m $m $m $m $m

Financial assets

Cash at bank and in hand:

– balances with HSBC undertakings 7,029 — — — — — — — 7,029

Financial assets with HSBC undertakings

designated and otherwise mandatorily

measured at fair value

— — — — — 3,815 26,284 29,780 59,879

Derivatives 2,217 — — — — 18 675 434 3,344

Loans and advances to HSBC undertakings — — 120 — — 1,016 6,783 19,435 27,354

Financial investments 10,365 6,017 898 750 757 771 — — 19,558

Accrued income and other financial assets 3,511 860 254 229 5 — — — 4,859

Total financial assets at 31 Dec 2023 23,122 6,877 1,272 979 762 5,620 33,742 49,649

122,023

Non-financial assets — — — — — — — 163,146

163,146

Total assets at 31 Dec 2023 23,122 6,877 1,272 979 762 5,620 33,742 212,795

285,169

Financial liabilities

Amounts owed to HSBC undertakings — 168 — — — — — — 168

Financial liabilities designated at fairvalue — — — — — 5,287 19,604 18,747 43,638

– debt securities in issue — — — — — 3,816 16,175 15,198 35,189

– subordinated liabilities and preferred

securities

— — — — — 1,471 3,429 3,549 8,449

Derivatives 2,452 209 7 59 75 558 1,318 1,412 6,090

Debt securities in issue — — 816 2,158 — 4,920 33,735 23,610 65,239

Accruals and other financial liabilities 1,437 1,599 1,049 127 34 — — 23 4,269

Subordinated liabilities — 1,987 — — — 1,600 880 19,972 24,439

Total financial liabilities 31 Dec 2023 3,889 3,963 1,872 2,344 109 12,365 55,537 63,764

143,843

Non-financial liabilities — — — — — — — 20 20

Total liabilities at 31 Dec 2023 3,889 3,963 1,872 2,344 109 12,365 55,537 63,784

143,863

Financial assets

Cash at bank and in hand:

– balances with HSBC undertakings 3,210 — — — — — — — 3,210

Financial assets with HSBC undertakings

designated and otherwise mandatorily

measured at fair value

— — — — — 9,007 16,230 27,085 52,322

Derivatives 2,889 — — — — — 796 116 3,801

Loans and advances to HSBC undertakings — 2,163 240 — — 2,035 4,414 17,913 26,765

Financial investments 1,517 2,712 8,870 1,020 2,194 3,153 — — 19,466

Accrued income and other financial assets 68 4,147 179 90 4 — 14 — 4,502

Total financial assets at 31Dec2022 7,684 9,022 9,289 1,110 2,198 14,195 21,454 45,114 110,066

Non-financial assets — — — — — — — 171,035 171,035

Total assets at 31 Dec 2022 7,684 9,022 9,289 1,110 2,198 14,195 21,454 216,149 281,101

Financial liabilities

Amounts owed to HSBC undertakings 48 266 — — — — — — 314

Financial liabilities designated at fair value — — — — — 1,447 16,459 14,217 32,123

– debt securities in issue — — — — — 1,447 12,784 11,192 25,423

– subordinated liabilities and preferred

securities

— — — — — — 3,675 3,025 6,700

Derivatives 2,540 — 35 — 102 460 1,638 2,147 6,922

Debt securities in issue — — 1,972 448 714 11,046 25,380 27,378 66,938

Accruals and other financial liabilities 722 450 648 61 35 — 14 31 1,961

Subordinated liabilities — — — — — 1,941 1,492 16,294 19,727

Total financial liabilities at 31Dec 2022 3,310 716 2,655 509 851 14,894 44,983 60,067 127,985

Non-financial liabilities — — — — — — — 8 8

Total liabilities at 31 Dec 2022 3,310 716 2,655 509 851 14,894 44,983 60,075 127,993

Notes on the financial statements

410 HSBC Holdings plc Annual Report and Accounts 2023

Contractual maturity of financial liabilities

The following table shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading

liabilities and derivatives not treated as hedging derivatives). For this reason, balances in the following table do not agree directly with those in

our consolidated balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities areclassified according to their

contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the ‘Due not more than 1 month’ time

bucket and not by contractual maturity.

In addition, loan and other credit-related commitments and financial guarantees are generally not recognised on our balance sheet. The

undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on the

basis of the earliest date they can be called.

Cash flows payable by HSBC under financial liabilities by remaining contractual maturities

Due not

than 1

month

Due over

1 month but

not more

than

3 months

Due over

3 months but

not more than

1 year

Due over

1 year but

not

more than

5 years

Due over

5 years Total

$m $m $m $m $m $m

Deposits by banks 52,938 2,898 3,304 17,123 362 76,625

Customer accounts 1,345,006 141,348 119,660 13,423 109 1,619,546

Repurchase agreements – non-trading 159,264 10,457 2,996 1 — 172,718

Trading liabilities 73,150 — — — — 73,150

Financial liabilities designated at fair value 22,262 9,156 26,033 63,960 44,886 166,297

Derivatives 232,598 609 1,295 2,445 2,910 239,857

Debt securities in issue 6,837 7,407 24,117 43,513 27,119 108,993

Subordinated liabilities 39 135 1,465 9,020 34,920 45,579

Other financial liabilities

149,904 9,752 5,943 2,555 2,109 170,263

2,041,998 181,762 184,813 152,040 112,415 2,673,028

Loan and other credit-related commitments 895,156 95 371 1,437 91 897,150

Financial guarantees

16,966 4 39 — — 17,009

At 31 Dec 2023 2,954,120 181,861 185,223 153,477 112,506 3,587,187

Proportion of cash flows payable in period 83% 5% 5% 4% 3%

Deposits by banks 47,082 406 4,024 16,050 359 67,921

Customer accounts 1,387,125 96,474 80,608 9,961 346 1,574,514

Repurchase agreements – non-trading 121,328 3,852 1,535 1,268 — 127,983

Trading liabilities 72,353 — — — — 72,353

Financial liabilities designated at fair value 16,687 7,859 18,740 63,606 43,475 150,367

Derivatives 283,512 171 1,181 2,222 1,059 288,145

Debt securities in issue 4,329 8,217 17,522 34,283 26,428 90,779

Subordinated liabilities 37 168 1,395 7,321 32,946 41,867

Other financial liabilities

153,597 8,670 5,994 3,230 1,704 173,195

2,086,050 125,817 130,999 137,941 106,317 2,587,124

Loan and other credit-related commitments 825,781 184 344 1,217 328 827,854

Financial guarantees

18,696 25 62 — — 18,783

At 31 Dec 2022 2,930,527 126,026 131,405 139,158 106,645 3,433,761

Proportion of cash flows payable in period 85% 4% 4% 4% 3%

1 Excludes financial liabilities of disposal groups.

2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

HSBC Holdings

HSBC Holdings’ primary sources of liquidity are dividends received from subsidiaries, interest on and repayment of intra-Group loans and

securities, and interest earned on its own liquid funds. HSBC Holdings also raises funds in the debt capital markets to meet the Group’s

minimum requirement for own funds and eligible liabilities and maintain an appropriate liquidity buffer. HSBC Holdings uses this liquidity to meet

its obligations, including interest and principal repayments on external debt liabilities, operating expenses and collateral on derivative

transactions.

HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar contracts issued

relating to its subsidiaries. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability to finance the

commitments and guarantees and the likelihood of the need arising.

HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding company level. During

2023, consistent with the Group’s capital plan, the Group’s material subsidiaries did not experience any significant restrictions on paying

dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments from

material subsidiaries. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other

things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating

performance.

HSBC Holdings currently has sufficient liquidity to meet its present and forecast requirements. Liquidity risk in HSBC Holdings is overseen by

Holdings ALCO.

HSBC Holdings plc Annual Report and Accounts 2023 411

Financial statements

The following table shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading

liabilities and derivatives not treated as hedging derivatives). For this reason, balances in the following table do not agree directly with those in

HSBC Holdings balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities areclassified according to their

contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the ‘Due not more than 1 month’ time

bucket and not by contractual maturity.

In addition, loan and other credit-related commitments and financial guarantees are generally not recognised on our balance sheet. The

undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on the

basis of the earliest date they can be called.

Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities

Due not

than 1

month

Due over 1

month but

not

more than 3

months

Due over 3

months but

not more

than

1 year

Due over 1

year but not

more than 5

years

Due over

5 years Total

$m $m $m $m $m $m

Amounts owed to HSBC undertakings — 168 — — — 168

Financial liabilities designated at fair value 23 405 1,437 31,050 25,610 58,525

Derivatives 1,244 556 1,651 2,227 726 6,404

Debt securities in issue — 680 4,787 46,909 27,745 80,121

Subordinated liabilities 46 2,163 1,360 8,239 30,862 42,670

Other financial liabilities 1,436 1,620 1,210 — 23 4,289

2,749 5,592 10,445 88,425 84,966 192,177

Loan commitments — — — — — —

Financial guarantees

— — — — — —

At 31 Dec 2023 2,749 5,592 10,445 88,425 84,966 192,177

Amounts owed to HSBC undertakings 48 266 — — — 314

Financial liabilities designated at fair value 11 72 1,139 22,921 19,196 43,339

Derivatives 1,182 177 1,089 4,231 1,321 8,000

Debt securities in issue — 544 4,899 44,608 32,540 82,591

Subordinated liabilities 46 161 1,068 8,262 27,045 36,582

Other financial liabilities 721 458 745 14 31 1,969

2,008 1,678 8,940 80,036 80,133 172,795

Loan commitments — — — — — —

Financial guarantees

— — — — — —

At 31 Dec 2022 2,008 1,678 8,940 80,036 80,133 172,795

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied. Prior period comparatives have been

restated. Refer to footnote 1 in Note 34.

Offsetting of financial assets and financial liabilities

In the offsetting of financial assets and financial liabilities, the net amount is reported in the balance sheet when the offset criteria are met. This

is achieved when there is a legally enforceable right to offset the recognised amounts and there is either an intention to settle on a net basis, or

realise the asset and settle the liability simultaneously.

In the following table, the ‘Amounts not set off in the balance sheet’ include transactions where:

– the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in

the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and

– cash and non-cash collateral (debt securities and equities) has been received/pledged for derivatives and reverse repurchase/repurchase,

stock borrowing/lending and similar agreements to cover net exposure in the event of a default or other predetermined events.

The effect of over-collateralisation is excluded.

‘Amounts not subject to enforceable netting agreements’ include contracts executed in jurisdictions where the rights of offset may not be

upheld under the local bankruptcy laws, and transactions where a legal opinion evidencing enforceability of the right of offset may not have

been sought, or may have been unable to obtain.

For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the

relevant customer agreements are subject to review and updated, as necessary, to ensure the legal right to set off remains appropriate.

Notes on the financial statements

412 HSBC Holdings plc Annual Report and Accounts 2023

Offsetting of financial assets and financial liabilities

Amounts subject to enforceable netting arrangements

Amounts not

subject to

enforceable

netting

arrangements

Total

Amounts not set off in the

balance sheet

Gross

amounts

Amounts

offset

Net

amounts

in the

balance

sheet

Financial

instruments,

including

non-cash

collateral

Cash

collateral

Net

amount

$m $m $m $m $m $m $m $m

Financial assets

Derivatives (Note 15)

341,473 (116,486) 224,987 (198,743) (22,926) 3,318 4,727 229,714

Reverse repos, stock borrowing and similar

agreements classified as:

– trading assets 29,152 (602) 28,550 (28,513) (34) 3 2,633 31,183

– non-trading assets 365,922 (135,210) 230,712 (230,240) (80) 392 21,653 252,365

Loans and advances to customers

34,173 (15,792) 18,381 (15,613) (93) 2,675 2 18,383

At 31 Dec 2023 770,720 (268,090) 502,630 (473,109) (23,133) 6,388 29,015 531,645

Derivatives (Note 15)

419,020 (140,987) 278,033 (236,372) (36,486) 5,175 6,126 284,159

Reverse repos, stock borrowing and similar

agreements classified as:

– trading assets 24,370 (236) 24,134 (24,105) (29) — 1,369 25,503

– non-trading assets 335,193 (102,888) 232,305 (231,432) (449) 424 21,689 253,994

Loans and advances to customers

28,336 (12,384) 15,952 (13,166) — 2,786 267 16,219

At 31 Dec 2022

806,919 (256,495) 550,424 (505,075) (36,964) 8,385 29,451 579,875

Financial liabilities

Derivatives (Note 15)

344,799 (116,486) 228,313 (198,640) (23,748) 5,925 6,459 234,772

Repos, stock lending and similar

agreements

classified as:

– trading liabilities 15,686 (172) 15,514 (15,453) — 61 6 15,520

– non-trading liabilities 270,493 (135,640) 134,853 (134,095) (669) 89 37,247 172,100

Customer accounts

42,522 (15,792) 26,730 (15,613) (93) 11,024 13 26,743

At 31 Dec 2023 673,500 (268,090) 405,410 (363,801) (24,510) 17,099 43,725 449,135

Derivatives (Note 15)

419,992 (140,987) 279,005 (239,234) (29,276) 10,495 6,757 285,762

Repos, stock lending and similar

agreements

classified as:

– trading liabilities 20,026 (236) 19,790 (19,790) — — 5 19,795

– non-trading liabilities 206,827 (102,888) 103,939 (103,296) (249) 394 23,809 127,748

Customer accounts

37,164 (12,384) 24,780 (13,166) — 11,614 14 24,794

At 31 Dec 2022

684,009 (256,495) 427,514 (375,486) (29,525) 22,503 30,585 458,099

1 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing

enforceability of the right of offset.

2 At 31 December 2023, the amount of cash margin received that had been offset against the gross derivatives assets was $5,105m (2022$8,357m).

The amount of cash margin paid that had been offset against the gross derivatives liabilities was $7,142m (2022: $10,918m).

3 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within ‘Trading

assets’ of $31,183m (2022: $25,503m) and ‘Trading liabilities’ of $15,520m (2022: $19,795m), see the ‘Funding sources and uses’ table on page 211.

4 At 31 December 2023, the total amount of ‘Loans and advances to customers’ was $938,535m (2022: $923,561m), of which $18,381m (2022:

$15,952m) was subject to offsetting.

5 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. We have restated 2022 comparative

data.

6 At 31 December 2023, the total amount of ‘Customer accounts’ was $1,611,647m (2022: $1,570,303m), of which $26,730m (2022:$24,780m) was

subject to offsetting.

HSBC Holdings plc Annual Report and Accounts 2023 413

Financial statements

Interest rate benchmark reform

Financial instruments yet to transition to alternative benchmarks, by main

benchmark

USD Libor GBP Libor

JPY Libor CDOR TIIE Others

At 31 Dec 2023

$m $m $m $m $m $m

Non-derivative financial assets

2,644 45 — 2,132 3,961 1,941

Non-derivative financial liabilities 905 2,054 558 181 1,323 9

Derivative notional contract amount 12,013 — — 134,636 32,836 11,821

At 31 Dec 2022

Non-derivative financial assets

54,348 304 — 1,695 3,635 4,144

Non-derivative financial liabilities 25,564 1,804 1,179 176 — —

Derivative notional contract amount 2,348,412 68 — 119,832 17,698 56,759

1 Comprises financial instruments referencing other significant benchmark rates yet to transition to alternative benchmarks (euro Libor, SOR, THBFIX,

MIFOR, Sibor and Johannesburg interbank average rate (‘JIBAR’)). An announcement was made by the South African regulator during the first half of

2023 on the cessation of the JIBAR. Therefore, JIBAR is also included in ‘Others‘ during the current period.

2 Gross carrying amount excluding allowances for expected credit losses.

3 Non-derivative assets exposure relates to contracts for clients requiring additional time for loan restructuring or repayment. The limited number of

remaining contracts are expected to be transitioned prior to cessation of ‘synthetic’ GBP Libor from 31 March 2024. Non-derivative financial liabilities

relate to MREL instruments that include references to GBP Libor in their contractual terms but are currently using a fixed interest rate. HSBC remains

committed to seeking to remediate and/or mitigate the risks associated with these contracts by the relevant interest rate calculation dates.

The amounts in the above table relate to HSBC’s main operating entities where HSBC has material exposures impacted by Ibor reform,

including in the UK, Hong Kong, France, the US, Mexico, Canada, Singapore, the UAE, Bermuda, Australia, Qatar, Germany, Thailand, India and

Japan. The amounts provide an indication of the extent of the Group’s exposure to the Ibor benchmarks that are due to be replaced. Amounts

are in respect of financial instruments that:

– contractually reference an interest rate benchmark that is planned to transition to an alternative benchmark;

– have a contractual maturity date beyond the date by which the reference interest rate benchmark is expected to cease; and

– are recognised on HSBC’s consolidated balance sheet.

Called up share capital and other equity instruments

Called up share capital and share premium

HSBC Holdings ordinary shares of $0.50 each, issued and fully paid

2023 2022

Number $m Number $m

At 1 Jan 20,293,607,410 10,147 20,631,520,439 10,316

Shares issued under HSBC employee share plans 10,778,479 5 10,226,221 5

Shares issued in lieu of dividends — — — —

Less: shares repurchased and cancelled 716,384,289 358 348,139,250 174

Less: treasury shares cancelled 325,273,407 163 — —

At 31 Dec

19,262,728,193 9,631 20,293,607,410 10,147

HSBC Holdings share premium

2023 2022

$m $m

At 31 Dec 14,738 14,664

Total called up share capital and share premium

2023 2022

$m $m

At 31 Dec 24,369 24,811

1 All HSBC Holdings ordinary shares in issue confer identical rights, including in respect of capital, dividends and voting.

HSBC Holdings non-cumulative preference share of £0.01

The one non-cumulative sterling preference share of £0.01 (‘sterling preference share’) has been in issue since 29 December 2010 and is held

by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share

carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder meetings of HSBC Holdings.

These securities can be redeemed by HSBC Holdings at any time, subject to prior approval by the PRA.

Notes on the financial statements

414 HSBC Holdings plc Annual Report and Accounts 2023

Other equity instruments

HSBC Holdings has included two types of additional tier 1 capital securities in its tier 1 capital, including the contingent convertible securities

described below. These are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own

ordinary shares to holders under any circumstances outside its control. See Note 29 for additional tier 1 securities accounted for as liabilities.

Additional tier 1 capital – contingent convertible securities

HSBC Holdings continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1

capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate investors and fund

managers. The net proceeds of the issuances are typically used for HSBC Holdings’ general corporate purposes and to further strengthen its

capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call dates. After the initial call

dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year periods based on credit

spreads, fixed at issuance, above prevailing market rates. Interest on the contingent convertible securities will be due and payable only at the

sole discretion of HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times to cancel for any reason (in whole or part) any

interest payment that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking

regulations or if the Group has insufficient reserves or fails to meet the solvency conditions defined in the securities’ terms.

The contingent convertible securities are undated and are repayable at the option of HSBC Holdings in whole typically at the initial call date or on

any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain regulatory or tax reasons.

Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC Holdings’ sterling preference shares and

therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares of HSBC Holdings

at a predetermined price, should HSBC’s consolidated non-transitional CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of

the securities, if the non-transitional CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at fixed contractual

conversion prices in the issuance currencies of the relevant securities, subject to anti-dilution adjustments.

HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity

Original nominal

amount (LCY)

First call

date

2023 2022

$m $m

$2,250m

6.375% perpetual subordinated contingent convertible securities Sep 2024 2,250 2,250

$2,450m

6.375% perpetual subordinated contingent convertible securities Mar 2025 2,450 2,450

$3,000m

6.000% perpetual subordinated contingent convertible securities May 2027 3,000 3,000

$2,350m

6.250% perpetual subordinated contingent convertible securities

Mar 2023 — 2,350

$1,800m

6.500% perpetual subordinated contingent convertible securities Mar 2028 1,800 1,800

$1,500m

4.600% perpetual subordinated contingent convertible securities

Dec 2030 1,500 1,500

€1,000m

4.000% perpetual subordinated contingent convertible securitiess

Mar 2026 1,000 1,000

$1,000m

4.700% perpetual subordinated contingent convertible securities

Mar 2031 1,000 1,000

$2,000m

8.000% perpetual subordinated contingent convertible securities

Mar 2028 1,980 —

€1,000m

6.000% perpetual subordinated contingent convertible securities

Sep 2023 — 1,123

€1,250m

4.750% perpetual subordinated contingent convertible securities Jul 2029 1,422 1,422

S$750m

5.000% perpetual subordinated contingent convertible securities

Sep 2023 — 550

€1,000m

5.875% perpetual subordinated contingent convertible securities Sep 2026 1,301 1,301

At 31 Dec 17,703 19,746

1 This security was called by HSBC Holdings on 30 January 2023 and redeemed and cancelled on 23 March 2023.

2 This security was issued by HSBC Holdings on 17 December 2020. The first call period commences six months prior to reset date of 17 June 2031.

3 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six months prior to reset date of 9 September 2026.

4 This security was issued by HSBC Holdings on 9 March 2021. The first call period commences six months prior to reset date of 9 September 2031.

5 This security was issued by HSBC Holdings on 7 March 2023. The first call period commences six months prior to reset date of 7 September 2028.

This security has been accounted for net of directly attributable transaction costs.

6 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 29 September 2023.

7 This security was called by HSBC Holdings on 3 August 2023 and was redeemed and cancelled on 25 September 2023.

Shares under option

For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Savings-Related Share Option

Plan (UK), see Note 5.

Aggregate options outstanding under these plans

31 Dec 2023 31 Dec 2022

Number of

HSBC Holdings

ordinary shares

Usual period of

exercise Exercise price

Number of

HSBC Holdings

ordinary shares

Usual period of

exercise Exercise price

83,993,678 2022 to 2029 £2.6270–£5.4490 115,650,723 2021 to 2028 £2.6270–5.9640

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2023, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements and the

HSBC International Employee Share Purchase Plan, together with long-term incentive awards and deferred share awards granted under the

HSBC Share Plan 2011, was 208,539,316 (2022: 240,612,019). The total number of shares at 31December 2023 held by employee benefit

trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 20,902,218 (2022: 12,315,711).

HSBC Holdings plc Annual Report and Accounts 2023 415

Financial statements

Contingent liabilities, contractual commitments and guarantees

HSBC HSBC Holdings

2023 2022 2023 2022

$m $m $m $m

Guarantees and other contingent liabilities:

– financial guarantees 17,009 18,783 — —

– performance and other guarantees 94,277 88,240 7,723 17,707

– other contingent liabilities 636 676 — 90

At 31 Dec 111,922 107,699 7,723 17,797

Commitments:

– documentary credits and short-term trade-related transactions 7,818 8,241 — —

– forward asset purchases and forward deposits placed 78,535 50,852 — —

– standby facilities, credit lines and other commitments to lend 810,797 768,761 — —

At 31 Dec 897,150 827,854 — —

1 Guarantees by HSBC Holdings are in favour of other Group entities. These include contracts that provide protection against credit risk on a specified

exposure but do not meet the definition of financial guarantees, which have been reclassified to ‘performance and other guarantees’. Prior period

comparatives have been restated and the full balance reclassified.

2 Includes $661,015m of commitments at 31 December 2023 (31 December 2022: $618,788m), to which the impairment requirements in IFRS 9 are

applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the

maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and

commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity

requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 28.

The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC’s

annual credit review process.

Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are excluded from this note but are

disclosed in Notes 28 and 36.

Financial Services Compensation Scheme

The Financial Services Compensation Scheme (‘FSCS’) provides compensation, up to certain limits, to eligible customers of financial services

firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on the Group to the extent the

industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The ultimate

FSCS levy to the industry as a result of a collapse cannot be estimated reliably. It is dependent on various uncertain factors including the

potential recovery of assets by the FSCS, changes in the level of protected products (including deposits and investments) and the population of

FSCS members at the time.

Associates

HSBC’s share of associates’ contingent liabilities, contractual commitments and guarantees amounted to $69.9bn at 31 December 2023 (2022:

$64.8bn). No matters arose where HSBC was severally liable.

Finance lease receivables

HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and

machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost

of assets less their residual value, and earn finance income.

The table below excludes finance lease receivables reclassified on the balance sheet to ‘Assets held for sale’ in accordance with IFRS 5. Net

investment in finance leases of $1,595m (2022: $1,502m) was reclassified to ‘Assets held for sale’ as a result of the planned sale of our banking

business in Canada.

2023 2022

Total future

minimum

payments

Unearned

finance

income

Present

value

Total future

minimum

payments

Unearned

finance

income

Present

value

$m $m $m $m $m $m

Lease receivables:

No later than one year 2,355 (308) 2,047 2,159 (236) 1,923

One to two years 1,954 (249) 1,705 1,652 (201) 1,451

Two to three years 1,380 (189) 1,191 1,391 (161) 1,230

Three to four years 930 (153) 777 906 (131) 775

Four to five years 593 (132) 461 613 (112) 501

Later than one year and no later than fiveyears 4,857 (723) 4,134 4,562 (605) 3,957

Later than five years 4,116 (838) 3,278 4,064 (736) 3,328

At 31 Dec 11,328 (1,869) 9,459 10,785 (1,577) 9,208

Notes on the financial statements

416 HSBC Holdings plc Annual Report and Accounts 2023

Legal proceedings and regulatory matters

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from

the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in

accordance with the accounting policies set out in Note 1. While the outcomes of legal proceedings and regulatory matters are inherently

uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these

matters as at 31 December 2023 (see Note 28). Where an individual provision is material, the fact that a provision has been made is stated and

quantified, except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of

wrongdoing or legal liability. It is not practicable to provide an aggregate estimate ofpotential liability for our legal proceedings and regulatory

matters as a class of contingent liabilities.

Bernard L. Madoff Investment Securities LLC

Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US

whose assets were invested with Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’). Based on information provided by Madoff

Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.

Based on information available to HSBC, the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities

during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as

defendants in lawsuits arising out of Madoff Securities’ fraud.

US litigation: The Madoff Securities Trustee has brought lawsuits against various HSBC companies and others, seeking recovery of alleged

transfers from Madoff Securities to HSBC in the amount of $543m (plus interest), and these lawsuits remain pending in the US Bankruptcy

Court for the Southern District of New York (the ‘US Bankruptcy Court’).

Certain Fairfield entities (together, ‘Fairfield’) (in liquidation) have brought a lawsuit in the US against fund shareholders, including HSBC

companies that acted as nominees for clients, seeking restitution of redemption payments in the amount of $382m (plus interest). Fairfield’s

claims against most of the HSBC companies have been dismissed by the US Bankruptcy Court and the US District Court for the Southern

District of New York, but remain pending on appeal before the US Court of Appeals for the Second Circuit. Fairfield’s claims against HSBC

Private Bank (Suisse) SA and HSBC Securities Services Luxembourg (‘HSSL’) have not been dismissed and their appeals are also pending

before the US Court of Appeals for the Second Circuit. Meanwhile, proceedings before the US Bankruptcy Court with respect to the claims

against HSBC Private Bank (Suisse) SA and HSSL are ongoing.

UK litigation: The Madoff Securities Trustee has filed a claim against various HSBC companies in the High Court of England and Wales,

seeking recovery of transfers from Madoff Securities to HSBC. The claim has not yet been served and the amount claimed has not been

specified.

Cayman Islands litigation: In February 2013, Primeo Fund (‘Primeo’) (in liquidation) brought an action against HSSL and Bank of Bermuda

(Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and breach of fiduciary duty and claiming damages.

Following dismissal of Primeo’s action by the Grand Court and Court of Appeal of the Cayman Islands, in 2019, Primeo appealed to the Judicial

Committee of the Privy Council. In November 2023, the Privy Council issued a judgment upholding the dismissal of Primeo’s claims. This matter

is now closed.

Luxembourg litigation: In 2009, Herald Fund SPC (‘Herald’) (in liquidation) brought an action against HSSL before the Luxembourg District

Court, seeking restitution of cash and securities in the amount of $2.5bn (plus interest), or damages in the amount of $2bn (plus interest). In

2018, HSBC Bank plc was added to the claim and Herald increased the amount of the alleged damages claim to $5.6bn (plus interest). The

Luxembourg District Court has dismissed Herald’s securities restitution claim, but reserved Herald’s cash restitution and damages claims.

Herald has appealed this dismissal to the Luxembourg Court of Appeal, where the matter is pending.

Beginning in 2009, various HSBC companies have been named as defendants in a number of actions brought by Alpha Prime Fund Limited

(‘Alpha Prime’) in the Luxembourg District Court seeking damages for alleged breach of contract and negligence in the amount of $1.16bn (plus

interest). These matters are currently pending before the Luxembourg District Court.

Beginning in 2014, HSSL and the Luxembourg branch of HSBC Bank plc have been named as defendants in a number of actions brought by

Senator Fund SPC (‘Senator’) before the Luxembourg District Court seeking restitution of securities in the amount of $625m (plus interest), or

damages in the amount of $188m (plus interest). These matters are currently pending before the Luxembourg District Court.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the

timing or any possible impact on HSBC, which could be significant.

US Anti-Terrorism Act litigation

Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf

of plaintiffs who are, or are related to, alleged victims of terrorist attacks in the Middle East. In each case, it is alleged that the defendants aided

and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act, or provided banking services to

customers alleged to have connections to terrorism financing. Seven actions, which seek damages for unspecified amounts, remain pending

and HSBC’s motions to dismiss have been granted in three of these cases. These dismissals are subject to appeals and/or the plaintiffs re-

pleading their claims. The four other actions are at an early stage.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or

any possible impact on HSBC, which could be significant.

HSBC Holdings plc Annual Report and Accounts 2023 417

Financial statements

Interbank offered rates investigation and litigation

Euro interest rate derivatives: In December 2016, the European Commission (‘EC’) issued a decision finding that HSBC, among other banks,

engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives, and the EC imposed a fine on HSBC based

on a one-month infringement in 2007. The fine was annulled in 2019 and a lower fine was imposed in 2021. In January 2023, the European

Court of Justice dismissed an appeal by HSBC and upheld the EC’s findings on HSBC’s liability. A separate appeal by HSBC concerning the

amount of the fine remains pending before the General Court of the European Union.

US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of individual and putative class

action lawsuits filed in federal and state courts in the US with respect to the setting of US dollar Libor. The complaints assert claims under

various US federal and state laws, including antitrust and racketeering laws and the Commodity Exchange Act (‘US CEA’). HSBC has concluded

class settlements with five groups of plaintiffs, and several class action lawsuits brought by other groups of plaintiffs have been voluntarily

dismissed. A number of individual US dollar Libor-related actions seeking damages for unspecified amounts remain pending.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the

timing or any possible impact on HSBC, which could be significant.

Foreign exchange-related investigations and litigation

In December 2016, Brazil’s Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange market and

identified a number of banks, including HSBC, as subjects of its investigation, which remains ongoing.

Since 2017, HSBC Bank plc, among other financial institutions, has been defending a complaint filed by the Competition Commission of South

Africa before the South African Competition Tribunal for alleged anti-competitive behaviour in the South African foreign exchange market. In

2020, a revised complaint was filed which also named HSBC Bank USA N.A. (‘HSBC Bank USA’) as a defendant. In January 2024, the South

African Competition Appeal Court dismissed HSBC Bank USA from the revised complaint, but denied HSBC Bank plc’s application to dismiss.

The Competition Commission has appealed the dismissal of HSBC Bank USA to the Constitutional Court of South Africa.

Since 2015, various HSBC companies and other banks have been named as defendants in a putative class action in the US District Court for the

Southern District of New York filed by a group of retail customers who dealt in foreign exchange products. The plaintiffs allege that the

defendants conspired to manipulate foreign exchange rates and seek damages for unspecified amounts. This action has been dismissed but

remains pending on appeal.

In January 2023, HSBC Bank plc and HSBC Holdings reached a settlement-in-principle with plaintiffs in Israel to resolve a class action filed in the

local courts alleging foreign exchange-related misconduct. The settlement remains subject to court approval. Lawsuits alleging foreign

exchange-related misconduct remain pending against HSBC and other banks in courts in Brazil.

In February 2024, HSBC Bank plc and HSBC Holdings were joined to an existing claim brought in the UK Competition Appeals Tribunal against

various other banks alleging historical anti-competitive behaviour in the foreign exchange market and seeking damages for unspecified amounts.

This matter is at an early stage. It is possible that additional civil actions will be initiated against HSBC in relation to its historical foreign

exchange activities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of the pending matters, which could be

significant.

Precious metals fix-related litigation

US litigation: HSBC and other members of The London Silver Market Fixing Limited are defending a class action pending in the US District

Court for the Southern District of New York alleging that, from January 2007 to December 2013, the defendants conspired to manipulate the

price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. In May

2023, this action, which seeks damages for unspecified amounts, was dismissed but remains pending on appeal.

HSBC and other members of The London Platinum and Palladium Fixing Company Limited are defending a class action pending in the US

District Court for the Southern District of New York alleging that, from January 2008 to November 2014, the defendants conspired to manipulate

the price of platinum group metals and related financial products for their collective benefit in violation of US antitrust laws and the US CEA. In

February 2023, the court reversed an earlier dismissal of the plaintiffs’ third amended complaint and this action, which seeks damages for

unspecified amounts, is proceeding.

Canada litigation: HSBC and other financial institutions are defending putative class actions filed in the Ontario and Quebec Superior Courts of

Justice alleging that the defendants conspired to manipulate the price of silver, gold and related derivatives in violation of the Canadian

Competition Act and common law. These actions each seek CA$1bn in damages plus CA$250m in punitive damages. Two of the actions are

proceeding and the others have been stayed.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or

any possible impact on HSBC, which could besignificant.

Tax-related investigations

Various tax administration, regulatory and law enforcement authorities around the world are conducting investigations in connection with

allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation. HSBC continues to cooperate with

these investigations.

In March 2023, the French National Financial Prosecutor announced an investigation into a number of banks, including HSBC Continental Europe

and the Paris branch of HSBC Bank plc, in connection with alleged tax fraud related to the dividend withholding tax treatment of certain trading

activities. HSBC Bank plc and HSBC Germany also continue to cooperate with investigations by the German public prosecutor into numerous

financial institutions and their employees, in connection with the dividend withholding tax treatment of certain trading activities.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or

any possible impact on HSBC, which could be significant.

Notes on the financial statements

418 HSBC Holdings plc Annual Report and Accounts 2023

Gilts trading investigation and litigation

Since 2018, the UK Competition and Markets Authority (‘CMA’) has been investigating HSBC and four other banks for suspected anti-

competitive conduct in relation to the historical trading of gilts and related derivatives. In May 2023, the CMA announced its case against HSBC

Bank plc and HSBC Holdings; both HSBC companies are contesting the CMA’s allegations.

In June 2023, HSBC Bank plc and HSBC Securities (USA) Inc., among other banks, were named as defendants in a putative class action filed in

the US District Court for the Southern District of New York by plaintiffs alleging anti-competitive conduct in the gilts market and seeking

damages for unspecified amounts. In September 2023, the defendants filed a motion to dismiss which remains pending. It is possible that

additional civil actions will be initiated against HSBC in relation to its historical gilts trading activities.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or

any possible impact on HSBC, which could be significant.

UK depositor protection arrangements investigation

In January 2022, the UK Prudential Regulation Authority (‘PRA’) commenced an investigation into HSBC Bank plc’s and HSBC UK Bank plc’s

compliance with depositor protection arrangements under the Financial Services Compensation Scheme in the UK. In January 2024, the PRA

concluded its investigation and imposed a £57m fine on HSBC Bank plc and HSBC UK Bank plc, which has been paid, and this matter is now

closed.

UK collections and recoveries investigation

Since 2019, the FCA has been investigating HSBC Bank plc’s, HSBC UK Bank plc’s and Marks and Spencer Financial Services plc’s compliance

with regulatory standards relating to collections and recoveries operations in the UK between 2017 and 2018. HSBC continues to cooperate

with this investigation.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of this matter, which could be significant.

Korean short selling investigation

In December 2023, the Korean Securities and Futures Commission issued a decision to impose a fine on The Hongkong and Shanghai Banking

Corporation Limited in connection with trades in breach of Korean short selling rules and to refer the case to the Korean Prosecutors’ Office for

investigation.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of this matter, which could be significant.

Silicon Valley Bank (‘SVB’) litigation

In May 2023, First-Citizens Bank & Trust Company (‘First Citizens’) brought a lawsuit in the US District Court for the Northern District of

California against various HSBC companies and seven US-based HSBC employees who had previously worked for SVB. The lawsuit seeks $1bn

in damages and alleges, among other things, that the various HSBC companies conspired with the individual defendants to solicit employees

from First Citizens and that the individual defendants took confidential information belonging to SVB and/or First Citizens. In January 2024, the

court denied the defendants’ motion to dismiss in part and granted it in part, and directed the plaintiff to amend its complaint to specify its

allegations as to each defendant. In February 2024, First Citizens filed its amended complaint. This action is ongoing.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any

possible impact on HSBC, which could be significant.

Film Finance litigation

In June 2020, two separate investor groups issued claims against HSBC UK Bank plc (as successor to HSBC Private Bank (UK) Limited (‘PBGB’))

in the High Court of England and Wales seeking damages for unspecified amounts in connection with PBGB’s role in the development of

Eclipse film finance schemes. These actions are ongoing.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or

any possible impact on HSBC, which could be significant.

US mortgage securitisation litigation

Beginning in 2014, a number of lawsuits were filed in various state and federal courts in the US against HSBC Bank USA, as a trustee of more

than 280 mortgage securitisation trusts, seeking unspecified damages for losses in collateral value allegedly sustained by the trusts. HSBC Bank

USA has reached settlements with a number of plaintiffs to resolve nearly all of these lawsuits. The remaining two actions are pending in a New

York state court. HSBC Bank USA and certain of its affiliates continue to defend a mortgage loan repurchase action seeking unspecified

damages and specific performance brought by the trustee of a mortgage securitisation trust in New York state court.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of the pending matters, which could be

significant.

Mexican government bond litigation

HSBC Mexico S.A. and other banks are named as defendants in a consolidated putative class action pending in the US District Court for the

Southern District of New York alleging anti-competitive conduct in the Mexican government bond market between 2006 and 2017 and seeking

damages for unspecified amounts. In February 2024, the US Court of Appeals for the Second Circuit reversed an earlier dismissal of this lawsuit

and this matter is proceeding.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any

possible impact on HSBC, which could be significant.

Stanford litigation

Since 2009, HSBC Bank plc has been named as a defendant in numerous claims filed in courts in the UK and the US arising from the collapse of

Stanford International Bank Ltd, for which it was a correspondent bank from 2003 to 2009. In February 2023, HSBC Bank plc reached

settlements with the plaintiffs to resolve these claims. The US settlement is subject to court approval and the UK settlement has concluded.

HSBC Holdings plc Annual Report and Accounts 2023 419

Financial statements

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are also subject to a number of other enquiries and examinations, requests for information,

investigations and reviews by various regulators and competition and law enforcement authorities, as well as legal proceedings including

litigation, arbitration and other contentious proceedings, in connection with various matters arising out of their ordinary course businesses and

operations.

At the present time, HSBC does not expect the ultimate resolution of any of these matters to be material to the Group’s financial position;

however, given the uncertainties involved in legal proceedings and regulatory matters, there can be no assurance regarding the eventual

outcome of a particular matter or matters.

Related party transactions

Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC

employees, Key Management Personnel (‘KMP’) as defined by IAS 24, close family members of KMP and entities that are controlled or jointly

controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing

and controlling the activities of HSBC Holdings. These individuals also constitute ‘senior management’ for the purposes of the Hong Kong

Listing Rules. In applying IAS 24, it was determined that for this financial reporting period all KMP included Directors, former Directors and

senior management listed on pages 239 to 246 except for the roles of Group Chief Legal Officer, Group Head of Internal Audit, Group Chief

Human Resources Officer, Group Chief Sustainability Officer, Group Head of Strategy, Group Chief Communications and Brand Officer, and

Group Company Secretary and Chief Governance Officer who do not meet the criteria for KMP as provided for in the standard.

Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding

during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances

during the year.

Key Management Personnel

Details of Directors’ remuneration and interests in shares are disclosed in the ‘Directors’ remuneration report’ on pages 279 to 305.

IAS24‘Related Party Disclosures’ requires the following additional information for key management compensation.

Compensation of Key Management Personnel

2023 2022 2021

$m $m $m

Short-term employee benefits 51 52 50

Post-employment benefits 1 1 —

Other long-term employee benefits 10 8 6

Share-based payments 29 26 27

Year ended 31 Dec 91 87 83

Shareholdings, options and other securities of Key Management Personnel

2023

2022

(000s) (000s)

Number of options held over HSBC Holdings ordinary shares under employee share plans 32 35

Number of HSBC Holdings ordinary shares held beneficially and non-beneficially 20,409 18,185

Number of other HSBC securities held 228 228

At 31 Dec 20,669 18,448

Advances and credits, guarantees and deposit balances during the year with Key Management Personnel

2023 2022

Balance at

31Dec

Highest amounts

outstanding

during year

Balance at

31 Dec

Highest amounts

outstanding

during year

$m $m $m $m

Key Management Personnel

Advances and credits

11 16 16 25

Deposits 60 130 53 123

1 Advances and credits entered into by subsidiaries of HSBC Holdings plc during 2023 with Directors and former Directors, disclosed pursuant to

section 413 of the Companies Act 2006, totalled $2.6m (2022: $2.5m).

Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of

Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made

in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with

persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of

repayment or present other unfavourable features.

Notes on the financial statements

420 HSBC Holdings plc Annual Report and Accounts 2023

Associates and joint ventures

The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest

bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 18.

Transactions and balances during the year with associates and joint ventures

2023 2022

Highest balance

during the year

Balance at

31 Dec

Highest balance

during the year

Balance at

31 Dec

$m $m $m $m

Unsubordinated amounts due from joint ventures 98 94 140 90

Unsubordinated amounts due from associates 7,907 5,910 7,378 6,594

Amounts due to associates 3,002 1,668 2,548 1,295

Amounts due to joint ventures 95 61 57 53

Fair value of derivative assets with associates 1,514 795 1,205 841

Fair value of derivative liabilities with associates 4,388 2,962 4,319 3,648

Guarantees and commitments 503 331 513 293

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and

security, as for comparable transactions with third-party counterparties.

Post-employment benefit plans

At 31 December 2023, $3.1bn (2022: $2.9bn) of HSBC post-employment benefit plan assets were under management by HSBC companies,

earning management fees of $13m in 2023 (2022: $13m). At 31 December 2023, HSBC’s post-employment benefit plans had placed deposits

of $402m (2022:$369m) with its banking subsidiaries, earning interest payable to the schemes of $2m (2022: nil). The above outstanding

balances arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for

comparable transactions with third-party counterparties.

The combined HSBC Bank (UK) Pension Scheme enters into swap transactions with HSBC to manage inflation and interest rate sensitivity of its

liabilities and selected assets. At 31 December 2023, the gross notional value of the swaps was $7.1bn (2022: $6.6bn). These swaps had a

positive fair value to the scheme of $0.5bn (2022: $0.5bn); and HSBC had delivered collateral of $0.6bn (2022: $0.5bn) to the scheme in respect

of these arrangements. All swaps were executed at prevailing market rates and within standard market bid/offer spreads.

HSBC Holdings

Details of HSBC Holdings’ subsidiaries are shown in Note 40.

Transactions and balances during the year with subsidiaries

2023 2022

Highest balance

during the year

Balance at

31 Dec

Highest balance

during the year

Balance at

31 Dec

$m $m $m $m

Assets

Cash and balances with HSBC undertakings 8,396 7,029 7,421 3,210

Financial assets with HSBC undertakings designated and otherwise mandatorily

measured at fair value

60,309 59,879 52,322 52,322

Derivatives 4,010 3,344 5,380 3,801

Loans and advances to HSBC undertakings 28,213 27,354 26,765 26,765

Prepayments, accrued income and other assets 7,417 5,145 4,893 4,803

Investments in subsidiaries 167,542 159,478 167,542 167,542

Total related party assets at 31 Dec 275,887 262,229 264,323 258,443

Liabilities

Amounts owed to HSBC undertakings 179 168 314 314

Derivatives 9,309 6,090 8,318 6,922

Accruals, deferred income and other liabilities 505 341 1,375 429

Subordinated liabilities 927 913 900 900

Total related party liabilities at 31 Dec 10,920 7,512 10,907 8,565

Guarantees and commitments 7,723 7,723 17,707 17,707

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and

security, as for comparable transactions with third-party counterparties.

Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company.

HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the

scheme is made in Note 5.

HSBC Holdings plc Annual Report and Accounts 2023 421

Financial statements

Effects of adoption of IFRS 17

On 1 January 2023, the Group adopted IFRS 17 ‘Insurance Contracts’, and as required by the standard applied the requirements retrospectively,

with comparatives restated from the transition date, 1 January 2022. The tables below provide the transition restatement impact on the Group’s

consolidated balance sheet as at 1 January 2022, as well as the Group consolidated income statement and the Group consolidated statement of

comprehensive income for the year ended 31 December 2022.

Further information about the effect of the adoption of IFRS 17 is provided in Note 1 ‘Basis of preparation and material accounting policies’ on

page 341.

IFRS 17 transition impact on the Group consolidated balance sheet at 1 January 2022

Under

IFRS 4

Removal of

PVIF and

IFRS 4

balances

Remeasure-

ment effect

of IFRS 9 re-

designations

Recognition

of IFRS 17

fulfilment

cash flows

Recognition

of IFRS 17

contractual

service

margin Tax effect

Under

IFRS 17

Total

movements

$m $m $m $m $m $m $m $m

Assets

Financial assets designated and otherwise

mandatorily measured at fair value through

profit or loss

49,804 — 60,991 — — — 110,795 60,991

Loans and advances to banks 83,136 — (569) — — — 82,567 (569)

Loans and advances to customers

1,045,814

— (1,280) — — — 1,044,534 (1,280)

Financial investments 446,274 — (54,269) — — — 392,005 (54,269)

Goodwill and intangible assets 20,622 (9,453) — — — — 11,169 (9,453)

Deferred tax assets 4,624 — — — — 808 5,432 808

All other assets

1,307,665

(4,468) — 4,198 (105) — 1,307,290 (375)

Total assets

2,957,939

(13,921) 4,873 4,198 (105) 808 2,953,792 (4,147)

Liabilities and equity

Liabilities

Insurance contract liabilities 112,745 (112,745) — 109,393 9,914 — 119,307 6,562

Deferred tax liabilities 4,673 — — — — (1,379) 3,294 (1,379)

All other liabilities

2,633,744

78 — 1,102 (51) — 2,634,873 1,129

Total liabilities

2,751,162

(112,667) — 110,495 9,863 (1,379) 2,757,474 6,312

Total shareholders’ equity 198,250 92,738 4,558 (99,631) (8,847) 1,947 189,015 (9,235)

Non-controlling interests 8,527 6,008 315 (6,666) (1,121) 240 7,303 (1,224)

Total equity 206,777 98,746 4,873 (106,297) (9,968) 2,187 196,318 (10,459)

Total liabilities and equity

2,957,939

(13,921) 4,873 4,198 (105) 808 2,953,792 (4,147)

Transition drivers

Removal of PVIF and IFRS 4 balances

The PVIF intangible asset of $9,453m previously reported under IFRS 4 within ‘Goodwill and intangible assets’ arose from the upfront

recognition of future profits associated with in-force insurance contracts. The PVIF intangible asset is no longer reported following the transition

to IFRS 17, as future profits are deferred within the CSM. Other IFRS 4 insurance contract assets (shown above within ‘All other assets’) and

insurance contract liabilities are removed on transition, to be replaced with IFRS 17 balances.

Remeasurement effect of IFRS 9 re-designations

Loans and advances of $1,849m and debt securities of $53,201m, both supporting associated insurance liabilities, were re-designated from an

amortised cost classification to fair value through profit and loss. Debt securities supporting the associated insurance liabilities of $1,068m were

reclassified from fair value through other comprehensive income to fair value through profit or loss. The re-designations were made in order to

more closely align the asset accounting with the valuation of the associated insurance liabilities. The re-designation of amortised cost assets

generated a net increase to assets of $4,873m because the fair value measurement on transition was higher than the previous amortised cost

carrying amount.

Recognition of the IFRS 17 fulfilment cash flows

The measurement of the insurance contracts liabilities under IFRS 17 is based on groups of insurance contracts and includes a liability for

fulfilling the insurance contracts, such as premiums, directly attributable expenses, insurance benefits and claims including policyholder returns

and the cost of guarantees. These are recorded within the fulfilment cash flow component of the insurance contract liability, together with the

risk adjustment for non-financial risk.

Recognition of the IFRS 17 contractual service margin

The CSM is a component of the insurance contract liability and represents the future unearned profit associated with insurance contracts that

will be released to the profit and loss over the expected coverage period.

Tax effect

The removal of deferred tax liabilities primarily results from the removal of the associated PVIF intangible asset, and new deferred tax assets are

reported, where appropriate, on temporary differences between the new IFRS 17 accounting balances and their associated tax bases.

Notes on the financial statements

422 HSBC Holdings plc Annual Report and Accounts 2023

IFRS 17 transition impact on the reported Group consolidated income statement for the year ended 31 December 2022

Under

IFRS 4

Removal

of PVIF

and

IFRS 4

balances

Remeasure-

ment effect

of IFRS 9 re-

designations

Insurance

finance

income/

expense

Contrac

- tual

service

margin

Onerous

contracts

Experience

variance

and other

Attribut-

able

expenses

Tax

effect

Under

IFRS 17

$m $m $m $m $m $m $m $m $m $m

Net interest income 32,610 — (2,233) — — — — — — 30,377

Net fee income 11,451 — — — — — — 319 — 11,770

Net income from financial

instruments held for trading or

managed on a fair value basis

10,469 — (191) — — — — — — 10,278

Net expense from assets and

liabilities of insurance businesses,

including related derivatives,

measured at fair value through profit

or loss

(3,394) — (10,437) — — — — — — (13,831)

Net insurance premium income 12,825 (12,825) — — — — — — — —

Insurance finance income/(expense) — — — 13,799 — — — — — 13,799

Insurance service result — — — — 965 (186) 30 — — 809

– insurance revenue — — — — 965 — 1,012 — — 1,977

– insurance service expense — — — — — (186) (982) — — (1,168)

Other operating income/(loss) (2,365) (265) — 48 — — — — — (2,582)

Total operating income 61,596 (13,090) (12,861) 13,847 965 (186) 30 319 — 50,620

Net insurance claims and benefits

paid and movement in liabilities to

policyholders

(9,869) 9,869 — — — — — — — —

Net operating income before

change in expected credit losses

and other credit impairment

charges

51,727 (3,221) (12,861) 13,847 965 (186) 30 319 — 50,620

Change in expected credit losses and

other credit impairment charges

(3,592) — 8 — — — — — — (3,584)

Net operating income 48,135 (3,221) (12,853) 13,847 965 (186) 30 319 — 47,036

Total operating expenses (33,330) — — — — — — 629 — (32,701)

Operating profit 14,805 (3,221) (12,853) 13,847 965 (186) 30 948 — 14,335

Share of profit in associates and joint

ventures

2,723 — — — — — — — — 2,723

Profit before tax 17,528 (3,221) (12,853) 13,847 965 (186) 30 948 — 17,058

Tax expense (858) — — — — — — — 49 (809)

Profit for the period 16,670 (3,221) (12,853) 13,847 965 (186) 30 948 49 16,249

Transition drivers

Removal of IFRS 4-based revenue items

As a result of the removal of the PVIF intangible asset and IFRS 4 results, the associated revenue of $265m for the year ended 31 December

2022 that was previously reported within ‘Other operating income/(loss)’ is no longer reported under IFRS 17. This includes the removal of the

value of new business and changes to PVIF intangible asset from valuation adjustments and experience variances.

On the implementation of IFRS 17, new income statement line items associated with insurance contract accounting were introduced.

Consequently, the previously reported IFRS 4 line items ‘Net insurance premium income’ and ‘Net insurance claims and benefits paid and

movement in liabilities to policyholders’ were also removed.

Remeasurement effect of IFRS 9 re-designations

Following the re-designation of financial assets supporting associated insurance liabilities to fair value through profit or loss classification, the

related income statement reporting also changed. Under our previous IFRS 4-based reporting convention, these assets generated interest

income of $2,233m for the year ended 31 December 2022, which is no longer reported in ‘Net interest income’ under IFRS 17. To the extent

that this interest income was shared with policyholders, the corresponding policyholder sharing obligation was previously included within the

‘net insurance claims and benefits paid and movement in liabilities to policyholders’ line.

Following re-designation to fair value through profit or loss, gains and losses from changes in the fair value of underlying assets, together with

interest income earned, are both reported within ‘Net expense from assets and liabilities of insurance businesses, including related derivatives,

measured at fair value through profit or loss’. Similar to an IFRS 4 basis, IFRS 17 accounting provides for an offset. While this offset was

reported within the claims line under IFRS 4, under IFRS 17 it is reported within the ‘Insurance finance income/(expense)’ line described below.

HSBC Holdings plc Annual Report and Accounts 2023 423

Financial statements

Introduction of IFRS 17 income statement

Insurance finance income/(expense)

Insurance finance income/(expense) of $13,799m for the year ended 31 December 2022 represents the change in the carrying amount of

insurance contracts arising from the effect of, and changes in, the time value of money and financial risk. For variable fee approach contracts,

which represent more than 90% of HSBC’s insurance contracts, the insurance finance income/(expense) includes the changes in the fair value

of underlying items (excluding additions and withdrawals). It therefore has an offsetting impact to investment income earned on underlying

assets supporting insurance contracts. This includes an offsetting impact to the gains and losses on assets re-designated on transition to fair

value through profit or loss, and which is now included in ‘Net expense from assets and liabilities of insurance businesses, including related

derivatives, measured at fair value through profit or loss’.

Contractual service margin

Revenue is recognised for the release of the CSM associated with the in-force business, which was allocated at a rate of approximately 9%

during 2022. The CSM release is largely impacted by the constant measure allocation approach for investment services, but may vary over time

primarily due to changes in the total amount of CSM reported on the balance sheet from factors such as new business written, the Group’s

share of investment experience, or changes to assumptions.

Onerous contracts

Losses on onerous contracts are taken to the income statement as incurred.

Experience variance and other

‘Experience variance and other’ represents the expected expenses, claims and recovery of acquisition cash flows, which are reported as part of

the insurance revenue. This is offset with the actual expenses and claims incurred in the year and amortisation of acquisition cash flows, which

are reported as part of insurance service expense.

Attributable expenses

Directly attributable expenses are the costs associated with originating and fulfilling an identified portfolio of insurance contracts. These costs

include distribution fees paid to third parties as part of originating insurance contracts together with appropriate allocations of fixed and variable

overheads, which are included within the fulfilment cash flows and are no longer shown on the operating expenses line, whereas non-

attributable expenses remain in the operating expenses.

IFRS 17 transition impact on the Group comprehensive income

Year ended 31 Dec 2022

Under

IFRS 17

Under

IFRS 4

$m $m

Total equity at 1 Jan 196,318 206,777

of which

– retained earnings 135,236 144,458

– financial assets at FVOCI reserve 49 (634)

– insurance finance reserve (696) —

Profit for the period 16,249 16,670

Debt instruments at fair value through other comprehensive income (7,232) (5,468)

Equity instruments designated at fair value through other comprehensive income 107 107

Insurance finance income recognised in other comprehensive income 1,775 —

Other comprehensive expense for the period, net of tax (11,892) (11,940)

Total comprehensive (expense)/income for the period (993) (631)

Other movements (10,128) (10,118)

Total equity at 31 Dec 185,197 196,028

Transition drivers

Insurance finance reserve

The insurance finance reserve reflects the impact of the adoption of the other comprehensive income option for our insurance business in

France. Underlying assets supporting these contracts are measured at fair value through other comprehensive income. Under this option, only

the amount that matches income or expenses recognised in profit or loss on underlying items is included in finance income or expenses,

resulting in the elimination of income statement accounting mismatches. The remaining amount of finance income or expenses for these

insurance contracts is recognised in OCI. At the transition date an insurance finance reserve of $696m was recognised and following transition,

gains net of tax of $1,775m were recorded in the year ended 31 December 2022. An offsetting fair value through other comprehensive income

reserve of $683m recorded on transition represents the accumulated fair value movements on assets supporting these insurance contract

liabilities, with associated losses net of tax of $1,898m recorded within the fair value through other comprehensive income reserve for the year

ended 31 December 2022.

Notes on the financial statements

424 HSBC Holdings plc Annual Report and Accounts 2023

Group‘s consolidated balance sheet at the transition date and at 31 December 2022

Under IFRS 17

Under IFRS 4

31 Dec 1 Jan 31 Dec 1 Jan

2022 2022 2022 2022

$m $m $m $m

Assets

Cash and balances at central banks 327,002 403,018 327,002 403,018

Items in the course of collection from other banks 7,297 4,136 7,299 4,136

Hong Kong Government certificates of indebtedness 43,787 42,578 43,787 42,578

Trading assets 218,093 248,842 218,093 248,842

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss 100,101 110,795 45,063 49,804

Derivatives

284,159 196,882 284,146 196,882

Loans and advances to banks 104,475 82,567 104,882 83,136

Loans and advances to customers 923,561 1,044,534 924,854 1,045,814

Reverse repurchase agreements – non-trading 253,754 241,648 253,754 241,648

Financial investments 364,726 392,005 425,563 446,274

Assets held for sale

115,919 3,411 115,919 3,411

Prepayments, accrued income and other assets 156,149 136,196 156,865 136,571

Current tax assets 1,230 970 1,230 970

Interests in associates and joint ventures 29,254 29,609 29,254 29,609

Goodwill and intangible assets 11,419 11,169 21,321 20,622

Deferred tax assets 8,360 5,432 7,498 4,624

Total assets 2,949,286 2,953,792 2,966,530 2,957,939

Liabilities and equity

Liabilities

Hong Kong currency notes in circulation 43,787 42,578 43,787 42,578

Deposits by banks 66,722 101,152 66,722 101,152

Customer accounts 1,570,303 1,710,574 1,570,303 1,710,574

Repurchase agreements – non-trading 127,747 126,670 127,747 126,670

Items in the course of transmission to other banks 7,864 5,214 7,864 5,214

Trading liabilities 72,353 84,904 72,353 84,904

Financial liabilities designated at fair value 127,321 145,503 127,327 145,502

Derivatives 285,762 191,064 285,764 191,064

Debt securities in issue 78,149 78,557 78,149 78,557

Liabilities of disposal groups held for sale 114,597 9,005 114,597 9,005

Accruals, deferred income and other liabilities 134,313 115,900 133,240 114,773

Current tax liabilities 1,135 699 1,135 698

Insurance contract liabilities 108,816 119,307 114,844 112,745

Provisions 1,958 2,566 1,958 2,566

Deferred tax liabilities 972 3,294 2,422 4,673

Subordinated liabilities 22,290 20,487 22,290 20,487

Total liabilities 2,764,089 2,757,474 2,770,502 2,751,162

Equity

Called up share capital 10,147 10,316 10,147 10,316

Share premium account 14,664 14,602 14,664 14,602

Other equity instruments 19,746 22,414 19,746 22,414

Other reserves (9,133) 6,447 (9,141) 6,460

Retained earnings 142,409 135,236 152,068 144,458

Total shareholders‘ equity 177,833 189,015 187,484 198,250

Non-controlling interests 7,364 7,303 8,544 8,527

Total equity 185,197 196,318 196,028 206,777

Total liabilities and equity 2,949,286 2,953,792 2,966,530 2,957,939

HSBC Holdings plc Annual Report and Accounts 2023 425

Financial statements

Events after the balance sheet date

On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking business in France to CCF, a subsidiary of Promontoria

MMB SAS (‘My Money Group’). The sale also included HSBC Continental Europe’s 100% ownership interest in HSBC SFH (France) and its 3%

ownership interest in Crédit Logement. In the fourth quarter of 2023, a loss of $2.0bn was recognised upon reclassification to held for sale, in

accordance with IFRS 5, which net of the $2.1bn partial reversal of impairment recognised in the first quarter of 2023, gave rise to a net reversal

of impairment recognised in the year of $0.1bn.

On 30 January 2024, the PRA concluded its investigation into HSBC Bank plc’s and HSBC UK Bank plc’s compliance with depositor protection

arrangements under the Financial Services Compensation Scheme in the UK. The PRA imposed a fine of $73m (£57m) on these entities, which

was fully provided for as at 31 December 2023, and has now been paid.

On 31 January 2024, HSBC Global Asset Management Limited, through its indirect subsidiary HSBC Global Asset Management Singapore

Limited, completed the acquisition of the Asia-Pacific-focused real estate investment manager Silkroad Property Partners Pte Ltd. HSBC Global

Asset Management Limited also acquired Silkroad’s affiliated General Partner entities as part of the transaction.

On 6 February 2024, HSBC Europe B.V., an indirect subsidiary of HSBC Holdings plc, signed an agreement to sell HSBC Bank Armenia CJSC, its

wholly-owned subsidiary, to Ardshinbank CJSC subject to regulatory approvals. The transaction is expected to complete within the next 12

months.

A fourth interim dividend for 2023 of $0.31 per ordinary share (a distribution of approximately $5,913m) was approved by the Directors after

31December 2023. On 21 February 2024, HSBC Holdings announced a share buy-back programme to purchase its ordinary shares up to a

maximum consideration of $2.0bn, which is expected to commence shortly and complete by our first quarter 2024 results announcement.

HSBC Holdings called $2,500m3.803% and $500m floating rate senior unsecured debt securities on 25 January 2024. These securities are

expected to be redeemed and cancelled on 11 March 2024. These accounts were approved by the Board of Directors on 21 February 2024 and

authorised for issue.

HSBC Holdings’ subsidiaries, joint ventures and associates

In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the

registered office addresses and the effective percentages of equity owned at 31 December 2023 are disclosed below.

Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership percentage

is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.

Notes on the financial statements

426 HSBC Holdings plc Annual Report and Accounts 2023

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

452 TALF SPV LLC 100.00

1, 15

AI Nominees (UK) One Limited 100.00

1, 16

AI Nominees (UK) Two Limited 100.00

116

Almacenadora Banpacifico S.A. (In

Liquidation)

99.99

Assetfinance December (F) Limited 100.00

Assetfinance December (H) Limited 100.00

Assetfinance December (P) Limited 100.00

Assetfinance December (R) Limited 100.00

Assetfinance June (A) Limited 100.00

Assetfinance June (D) Limited 100.00

Assetfinance Limited (In Liquidation) 100.00

Assetfinance March (B) Limited 100.00

Assetfinance March (D) Limited 100.00

Assetfinance March (F) Limited 100.00

Assetfinance September (F) Limited 100.00

Assetfinance September (G) Limited 100.00

B&Q Financial Services Limited 100.00

Banco HSBC S.A. 100.00

Banco Nominees (Guernsey) Limited

100.00

Banco Nominees 2 (Guernsey) Limited

100.00

Banco Nominees Limited 100.00

Beau Soleil Limited Partnership N/A

0, 24

Beijing HSBC Real Estate Leasing Company

Limited

100.00

1, 12, 25

Beijing Miyun HSBC Rural Bank Company

Limited

100.00

12, 26

BentallGreenOak China Real Estate

Investments, L.P.

N/A

0, 1, 27

Canada Crescent Nominees (UK) Limited 100.00

Canada Square Nominees (UK) Limited 100.00

Canada Water Nominees (UK) Limited (In

Liquidation)

100.00

Capco/Cove, Inc. 100.00

Card-Flo #1, Inc. 100.00

Card-Flo #3, Inc. 100.00

CC&H Holdings LLC 100.00

CCF & Partners Asset Management Limited 100.00 (99.99)

CCF Holding (Liban) S.A.L. (In Liquidation) 74.99

Charterhouse Administrators (D.T.) Limited 100.00 (99.99)

Charterhouse Management Services Limited 100.00 (99.99)

Charterhouse Pensions Limited 100.00

Chongqing Dazu HSBC Rural Bank Company

Limited

100.00

12, 31

Chongqing Fengdu HSBC Rural Bank

Company Limited

100.00

12, 32

Chongqing Rongchang HSBC Rural Bank

Company Limited

100.00

12, 33

COIF Nominees Limited N/A

0, 16

Corsair IV Financial Services Capital Partners -

B LP

N/A

0, 1, 34

Dalian Pulandian HSBC Rural Bank Company

Limited

100.00

12, 35

Decision One Mortgage Company, LLC N/A

0, 36

Dempar 1 100.00 (99.99)

4, 37

Desarrollo Turistico, S.A. de C.V. (In

Liquidation)

100.00 (99.99)

Electronic Data Process México, S.A. de C.V. 100.00

1, 38

Eton Corporate Services Limited 100.00

Flandres Contentieux S.A. 100.00 (99.99)

4, 37

Foncière Elysées 100.00 (99.99)

4, 37

Fujian Yongan HSBC Rural Bank Company

Limited

100.00

12, 39

Fulcher Enterprises Company Limited 100.00 (62.14)

Fundacion HSBC, A.C. 100.00 (99.99)

11, 17

Giller Ltd. 100.00

GPIF Co-Investment, LLC N/A

0, 15

Griffin International Limited 100.00

Grupo Financiero HSBC, S. A. de C. V. 99.99

Guangdong Enping HSBC Rural Bank

Company Limited

100.00

12, 41

Guangzhou HSBC Real Estate Company Ltd

(广州汇丰房地产有限公司)

100.00

1, 12, 42

Hang Seng (Nominee) Limited 100.00 (62.14)

Hang Seng Bank (China) Limited N/A

0, 12, 43

Hang Seng Bank (Trustee) Limited 100.00 (62.14)

Hang Seng Bank Limited 62.14

Hang Seng Bullion Company Limited 100.00 (62.14)

Hang Seng Credit Limited 100.00 (62.14)

Hang Seng Data Services Limited 100.00 (62.14)

Hang Seng Finance Limited 100.00 (62.14)

Hang Seng Financial Information Limited 100.00 (62.14)

Hang Seng Indexes (Netherlands) B.V. N/A

0, 1, 44

Hang Seng Indexes Company Limited 100.00 (62.14)

Hang Seng Insurance Company Limited 100.00 (62.14)

Hang Seng Investment Management Limited 100.00 (62.14)

Hang Seng Investment Services Limited 100.00 (62.14)

Hang Seng Qianhai Fund Management

Company Limited

N/A

0, 12, 45

Hang Seng Real Estate Management Limited 100.00 (62.14)

Hang Seng Securities Limited 100.00 (62.14)

Hang Seng Security Management Limited 100.00 (62.14)

HASE Wealth Limited 100.00 (62.14)

1, 40

Haseba Investment Company Limited 100.00 (62.14)

HFC Bank Limited (In Liquidation) 100.00

High Time Investments Limited 100.00 (62.14)

HLF 100.00 (99.99)

4, 37

Honey Blue Enterprises Limited (亨京企業有

限公司)

100.00

1, 46

Honey Green Enterprises Ltd. 100.00

Honey Grey Enterprises Limited (亨穗企業有

限公司)

100.00

1, 48

Honey Silver Enterprises Limited (亨深企業有

限公司)

100.00

1, 48

Household International Europe Limited (In

Liquidation)

100.00

5, 49

Household Pooling Corporation 100.00

Housing (USA) LLP N/A

0, 1, 29

HSBC (BGF) Investments Limited 100.00

HSBC (General Partner) Limited 100.00

2, 51

HSBC (Guernsey) GP PCC Limited 100.00

HSBC (Kuala Lumpur) Nominees Sdn Bhd 100.00

HSBC (Malaysia) Trustee Berhad 100.00

HSBC (Singapore) Nominees Pte Ltd 100.00

HSBC Agency (India) Private Limited 100.00

HSBC Alternative Investments Limited 100.00

HSBC Amanah Malaysia Berhad 100.00

HSBC Americas Corporation (Delaware) 100.00

HSBC Argentina Holdings S.A.

100.00

HSBC Asia Holdings B.V.

100.00

HSBC Asia Holdings Limited

100.00

2, 48

HSBC Asia Pacific Holdings (UK) Limited 100.00

5, 16

HSBC Asset Finance (UK) Limited 100.00

HSBC Asset Finance M.O.G. Holdings (UK)

Limited

100.00

HSBC Asset Management (Fund Services UK)

Limited

100.00

1, 16

HSBC Asset Management (India) Private

Limited

99.99

3, 57

HSBC Asset Management (Japan) Limited 100.00

HSBC Assurances Vie (France) 100.00 (99.99)

4, 59

HSBC Australia Holdings Pty Limited 100.00

5, 60

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Holdings plc Annual Report and Accounts 2023 427

Financial statements

HSBC BANK (CHILE) 100.00

HSBC Bank (China) Company Limited N/A

0, 12, 62

HSBC Bank (General Partner) Limited 100.00

HSBC Bank (Mauritius) Limited 100.00

HSBC Bank (RR) (Limited Liability Company) N/A

0, 13, 64

HSBC Bank (Singapore) Limited 100.00

HSBC Bank (Taiwan) Limited 100.00

HSBC Bank (Uruguay) S.A. 100.00

HSBC Bank (Vietnam) Ltd. 100.00

HSBC Bank A.S. 100.00 (99.99)

HSBC Bank Argentina S.A. 99.99

HSBC Bank Armenia cjsc 100.00

HSBC Bank Australia Limited 100.00

HSBC Bank Bermuda Limited 100.00

HSBC Bank Canada 100.00

3, 70

HSBC Bank Capital Funding (Sterling 1) LP N/A

0, 51

HSBC Bank Capital Funding (Sterling 2) LP N/A

0, 51

HSBC Bank Egypt S.A.E 99.62 (94.54)

HSBC Bank Malaysia Berhad 100.00

3, 52

HSBC Bank Malta p.l.c. 70.03

HSBC Bank Middle East Limited 100.00

3, 73

HSBC Bank Middle East Limited

Representative Office Morocco SARL (In

Liquidation)

100.00

HSBC Bank Pension Trust (UK) Limited 100.00

HSBC Bank plc 100.00

2, 3, 16

HSBC Bank USA, National Association 100.00

3, 75

HSBC Branch Nominee (UK) Limited 100.00

HSBC Brasil Holding S.A. 100.00

HSBC Broking Forex (Asia) Limited

100.00

HSBC Broking Futures (Asia) Limited 100.00

HSBC Broking Futures (Hong Kong) Limited 100.00

HSBC Broking Securities (Asia) Limited 100.00

HSBC Broking Securities (Hong Kong) Limited 100.00

HSBC Broking Services (Asia) Limited 100.00

HSBC Canadian Covered Bond (Legislative)

GP Inc.

100.00

HSBC Canadian Covered Bond (Legislative)

Guarantor Limited Partnership

N/A

0, 76

HSBC Capital (USA), Inc. 100.00

3, 15

HSBC Capital Funding (Dollar 1) L.P. N/A

0, 51

HSBC Card Services Inc. 100.00

HSBC Casa de Bolsa, S.A. de C.V., Grupo

Financiero HSBC

100.00 (99.99)

HSBC Cayman Limited 100.00

192

HSBC Cayman Services Limited 100.00

HSBC City Funding Holdings (In Liquidation) 100.00

HSBC Client Holdings Nominee (UK) Limited 100.00

HSBC Client Nominee (Jersey) Limited 100.00

HSBC Columbia Funding, LLC N/A

0, 15

HSBC Continental Europe 99.99

4, 37

HSBC Corporate Advisory (Malaysia) Sdn Bhd 100.00

HSBC Corporate Finance (Hong Kong) Limited 100.00

HSBC Corporate Secretary (UK) Limited 100.00

1, 2, 16

HSBC Corporate Services (Shanghai) Co., Ltd

N/A

0, 1, 79

HSBC Corporate Trustee Company (UK)

Limited

100.00

HSBC Custody Nominees (Australia) Limited 100.00

HSBC Custody Services (Guernsey) Limited 100.00

HSBC Daisy Investments (Mauritius) Limited 100.00

HSBC Diversified Loan Fund General Partner

Sarl

N/A

0, 81

HSBC Electronic Data Processing

(Guangdong) Limited

N/A

0, 12, 82

HSBC Electronic Data Processing (Malaysia)

Sdn Bhd

100.00

HSBC Electronic Data Processing

(Philippines), Inc.

99.99

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Electronic Data Processing India

Private Limited

100.00

HSBC Electronic Data Processing Lanka

(Private) Limited

100.00

HSBC Electronic Data Service Delivery

(Egypt) S.A.E.

100.00

HSBC Epargne Entreprise (France) 100.00 (99.99)

4, 59

HSBC Equipment Finance (UK) Limited 100.00

HSBC Equity (UK) Limited 100.00

HSBC Europe B.V. 100.00

HSBC Executor & Trustee Company (UK)

Limited

100.00

HSBC Factoring (France) 100.00 (99.99)

4, 37

HSBC Finance (Netherlands) 100.00

2, 16

HSBC Finance Corporation 100.00

3, 15

HSBC Finance Limited 100.00

HSBC Finance Mortgages Inc. 100.00

HSBC Finance Transformation (UK) Limited 100.00

HSBC Financial Advisors Singapore Pte. Ltd. 100.00

1, 54

HSBC Financial Services (Lebanon) s.a.l. 99.80

HSBC Financial Services (Uruguay) S.A. (In

Liquidation)

100.00

HSBC FinTech Services (Shanghai) Company

Limited

N/A

0, 1, 91

HSBC Global Asset Management (Bermuda)

Limited

100.00

3, 23

HSBC Global Asset Management (Canada)

Limited

100.00

HSBC Global Asset Management

(Deutschland) GmbH

100.00 (99.99)

6, 92

HSBC Global Asset Management (France) 100.00 (99.99)

4, 59

HSBC Global Asset Management (Hong

Kong) Limited

100.00

HSBC Global Asset Management (Malta)

Limited

100.00 (70.03)

HSBC Global Asset Management (México),

S.A. de C.V., Sociedad Operadora de Fondos

de Inversión, Grupo Financiero HSBC

100.00 (99.99)

HSBC Global Asset Management (Singapore)

Limited

100.00

HSBC Global Asset Management

(Switzerland) AG

100.00

4, 94

HSBC Global Asset Management (Taiwan)

Limited

100.00

HSBC Global Asset Management (UK)

Limited

100.00

HSBC Global Asset Management (USA) Inc. 100.00

HSBC Global Asset Management Argentina

S.A. Sociedad Gerente de Fondos Comunes

de Inversión

100.00 (99.99)

HSBC Global Asset Management Holdings

(Bahamas) Limited

100.00

HSBC Global Asset Management Limited 100.00

2, 16

HSBC Global Custody Nominee (UK) Limited 100.00

HSBC Global Custody Proprietary Nominee

(UK) Limited

100.00

1, 16

HSBC Global Services (Canada) Limited 100.00

HSBC Global Services (China) Holdings

Limited

100.00

HSBC Global Services (Hong Kong) Limited 100.00

HSBC Global Services (UK) Limited 100.00

HSBC Global Services Limited 100.00

2, 16

HSBC Group Management Services Limited 100.00

HSBC Group Nominees UK Limited 100.00

2, 16

HSBC Holdings B.V. 100.00

HSBC IM Pension Trust Limited 100.00

HSBC Infrastructure Debt GP 1 S.à r.l. N/A

0, 1, 100

HSBC Infrastructure Debt GP 2 S.à r.l. N/A

0, 1, 100

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Notes on the financial statements

428 HSBC Holdings plc Annual Report and Accounts 2023

HSBC Infrastructure Limited (In Liquidation) 100.00

HSBC Innovation Bank Limited 100.00

1, 101

HSBC INSN (Non Operating) Pte. Ltd. (In

Liquidation)

100.00

HSBC Institutional Trust Services (Asia)

Limited

100.00

HSBC Institutional Trust Services (Bermuda)

Limited

100.00

HSBC Institutional Trust Services (Mauritius)

Limited

100.00

102

HSBC Institutional Trust Services (Singapore)

Limited

100.00

HSBC Insurance (Asia-Pacific) Holdings

Limited

100.00

103

HSBC Insurance (Asia) Limited

100.00

104

HSBC Insurance (Bermuda) Limited 100.00

105

HSBC Insurance Agency (USA) Inc. 100.00

106

HSBC Insurance Brokerage Company Limited N/A

0, 1, 107

HSBC Insurance Brokers Greater China

Limited

100.00

1, 108

HSBC Insurance Holdings Limited (In

Liquidation)

100.00

2, 16

HSBC Insurance SAC 1 (Bermuda) Limited 100.00

HSBC Insurance SAC 2 (Bermuda) Limited 100.00

1, 109

HSBC Insurance Services Holdings Limited 100.00

HSBC International Finance Corporation

(Delaware)

100.00

110

HSBC International Trustee (BVI) Limited 100.00

10, 111

HSBC International Trustee (Holdings) Pte.

Limited

100.00

HSBC International Trustee Limited 100.00

112

HSBC Inversiones S.A. 100.00

HSBC InvestDirect (India) Private Limited 99.99

HSBC InvestDirect Financial Services (India)

Limited

99.99

HSBC InvestDirect Sales & Marketing (India)

Limited

98.99

113

HSBC InvestDirect Securities (India) Private

Limited

99.99

HSBC Investment and Insurance Brokerage,

Philippines Inc.

99.99

114

HSBC Investment Bank Holdings B.V. 100.00

HSBC Investment Bank Holdings Limited 100.00

HSBC Investment Company Limited 100.00

2, 16

HSBC Investment Funds (Canada) Inc. 100.00

5, 115

HSBC Investment Funds (Hong Kong) Limited 100.00

HSBC Investment Funds (Luxembourg) SA 100.00

116

HSBC Invoice Finance (UK) Limited 100.00

HSBC Issuer Services Common Depositary

Nominee (UK) Limited

100.00

HSBC Issuer Services Depositary Nominee

(UK) Limited (In Liquidation)

100.00

HSBC Latin America B.V. 100.00

HSBC Latin America Holdings (UK) Limited 100.00

2, 16

HSBC Leasing (Asia) Limited 100.00

HSBC Life (Bermuda) Limited 100.00

1, 23

HSBC Life (Cornell Centre) Limited 100.00

104

HSBC Life (Edwick Centre) Limited 100.00

104

HSBC Life (International) Limited 100.00

HSBC Life (Property) Limited 100.00

104

HSBC Life (Singapore) Pte. Ltd. 100.00

1, 54

HSBC Life (Tsing Yi Industrial) Limited 100.00

104

HSBC Life (UK) Limited 100.00

HSBC Life (Workshop) Limited 100.00

1, 104

HSBC Life Assurance (Malta) Limited 100.00 (70.03)

HSBC Life Insurance Company Limited N/A

0, 12, 117

HSBC LU Nominees Limited 100.00

HSBC Management (Guernsey) Limited 100.00

118

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Markets (USA) Inc. 100.00

HSBC Marking Name Nominee (UK) Limited 100.00

HSBC Master Trust Trustee Limited 100.00

HSBC Mexico, S.A., Institucion de Banca

Multiple, Grupo Financiero HSBC

99.99

HSBC Middle East Asset CO. LLC 100.00

119

HSBC Middle East Holdings B.V. 100.00

2, 3, 73

HSBC Middle East Leasing Partnership N/A

0, 120

HSBC Middle East Securities L.L.C 100.00

121

HSBC Mortgage Corporation (Canada) 100.00

122

HSBC Mortgage Corporation (USA) 100.00

HSBC Nominees (Asing) Sdn Bhd 100.00

HSBC Nominees (Hong Kong) Limited 100.00

HSBC Nominees (New Zealand) Limited 100.00

123

HSBC Nominees (Tempatan) Sdn Bhd 100.00

HSBC North America Holdings Inc. 100.00

3, 15

HSBC Operational Services GmbH 100.00 (99.99)

6, 92

HSBC Overseas Holdings (UK) Limited 100.00

2, 3, 16

HSBC Overseas Investments Corporation

(New York)

100.00

124

HSBC Overseas Nominee (UK) Limited 100.00

HSBC Participaciones (Argentina) S.A. 100.00 (99.99)

HSBC PB Corporate Services 1 Limited 100.00

125

HSBC PB Services (Suisse) SA 100.00

126

HSBC Pension Trust (Ireland) DAC 100.00

127

HSBC Pensiones, S.A. (In Liquidation) 100.00 (99.99)

HSBC Philanthropy Foundation Beijing N/A

0, 191

HSBC PI Holdings (Mauritius) Limited 100.00

128

HSBC Portfoy Yonetimi A.S. 100.00

129

HSBC Preferential LP (UK) 100.00

HSBC Private Bank (Luxembourg) S.A. 100.00 (99.99)

116

HSBC Private Bank (Suisse) SA 100.00

130

HSBC Private Bank (UK) Limited 100.00

HSBC Private Banking Holdings (Suisse) SA 100.00

126

HSBC Private Banking Nominee 3 (Jersey)

Limited

100.00

125

HSBC Private Equity Investments (UK)

Limited

100.00

HSBC Private Investment Counsel (Canada)

Inc.

100.00

3, 115

HSBC Private Markets Management SARL N/A

0, 1, 131

HSBC Private Trustee (Hong Kong) Limited 100.00

HSBC Professional Services (India) Private

Limited

100.00

132

HSBC Property (UK) Limited 100.00

HSBC Property Funds (Holding) Limited 100.00

HSBC Provident Fund Trustee (Hong Kong)

Limited

100.00

HSBC Qianhai Securities Limited N/A

0, 12, 133

HSBC Real Estate Leasing (France) 100.00 (99.99)

4, 37

HSBC REGIO Fund General Partner S.à r.l. N/A

0, 1, 100

HSBC REIM (France) 100.00 (99.99)

4, 59

HSBC Retirement Benefits Trustee (UK)

Limited

100.00

1, 2, 16

HSBC Retirement Services Limited 100.00

1, 16

HSBC Saudi Arabia, Closed Joint Stock

Company

100.00 (66.18)

134

HSBC Savings Bank (Philippines) Inc. 99.99

135

HSBC Securities (Canada) Inc. 100.00

HSBC Securities (Egypt) S.A.E. (In

Liquidation)

100.00 (94.65)

HSBC Securities (Japan) Co., Ltd. 100.00

1, 58

HSBC Securities (Japan) Limited (In

Liquidation)

100.00

HSBC Securities (Singapore) Pte Limited 100.00

HSBC Securities (South Africa) (Pty) Limited 100.00

136

HSBC Securities (Taiwan) Corporation Limited 100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Holdings plc Annual Report and Accounts 2023 429

Financial statements

HSBC Securities (USA) Inc. 100.00

HSBC Securities and Capital Markets (India)

Private Limited

99.99

5, 113

HSBC Securities Brokers (Asia) Limited 100.00

HSBC Securities Investments (Asia) Limited 100.00

HSBC Securities Services (Bermuda) Limited 100.00

HSBC Securities Services (Guernsey) Limited 100.00

HSBC Securities Services (Ireland) DAC 100.00

127

HSBC Securities Services (Luxembourg) S.A. 100.00

116

HSBC Securities Services Holdings (Ireland)

DAC

100.00

127

HSBC Securities Services Nominees Limited 100.00

1, 48

HSBC Seguros de Retiro (Argentina) S.A. 100.00 (99.99)

HSBC Seguros de Vida (Argentina) S.A. 100.00 (99.99)

HSBC Seguros, S.A de C.V., Grupo Financiero

HSBC

100.00 (99.99)

HSBC Service Company Germany GmbH 100.00 (99.99)

1, 6, 92

HSBC Service Delivery (Polska) Sp. z o.o. 100.00

137

HSBC Services (France) 100.00 (99.99)

4, 37

HSBC Services Japan Limited 100.00

138

HSBC Services USA Inc. 100.00

139

HSBC Servicios Financieros, S.A. de C.V 100.00 (99.99)

HSBC Servicios, S.A. DE C.V., Grupo

Financiero HSBC

100.00 (99.99)

HSBC SFH (France) 100.00 (99.99)

HSBC SFT (C.I.) Limited 100.00

HSBC Software Development (Guangdong)

Limited

N/A

0, 12, 140

HSBC Software Development (India) Private

Limited

100.00 (99.99)

141

HSBC Software Development (Malaysia) Sdn

Bhd

100.00

HSBC Specialist Investments Limited 100.00

3, 16

HSBC Technology & Services (China) Limited N/A

0, 12, 142

HSBC Technology & Services (USA) Inc. 100.00

HSBC Transaction Services GmbH 100.00

(99.99)

6, 92

HSBC Trinkaus & Burkhardt (International)

S.A.

100.00 (99.99)

143

HSBC Trinkaus & Burkhardt Gesellschaft fur

Bankbeteiligungen mbH

100.00 (99.99)

HSBC Trinkhaus & Burkhardt GmbH 100.00 (99.99)

1, 6, 144

HSBC Trinkaus Family Office GmbH 100.00 (99.99)

6, 92

HSBC Trinkaus Real Estate GmbH 100.00 (99.99)

6, 92

HSBC Trust Company (Canada) 100.00

122

HSBC Trust Company (Delaware), National

Association

100.00

110

HSBC Trust Company (UK) Limited 100.00

HSBC Trustee (C.I.) Limited 100.00

125

HSBC Trustee (Cayman) Limited 100.00

145

HSBC Trustee (Guernsey) Limited 100.00

HSBC Trustee (Hong Kong) Limited 100.00

HSBC Trustee (Singapore) Limited 100.00

HSBC UK Bank plc 100.00

2, 18

HSBC UK Client Nominee Limited 100.00

HSBC UK Holdings Limited (In Liquidation) 100.00

2, 3, 146

HSBC UK Societal Projects Limited N/A

0, 1, 18

HSBC USA Inc. 100.00

3, 124

HSBC Ventures USA Inc. 100.00

HSBC Violet Investments (Mauritius) Limited 100.00

HSBC Wealth Client Nominee Limited 100.00

1, 18

HSBC Yatirim Menkul Degerler A.S. 100.00

HSI Asset Securitization Corporation 100.00

HSI International Limited 100.00 (62.14)

HSIL Investments Limited 100.00

Hubei Macheng HSBC Rural Bank Company

Limited

N/A

0, 12, 147

Hubei Suizhou Cengdu HSBC Rural Bank

Company Limited

N/A

0, 12, 148

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Hubei Tianmen HSBC Rural Bank Company

Limited

N/A

0, 12, 149

Hunan Pingjiang HSBC Rural Bank Company

Limited

N/A

0, 12, 150

Imenson Limited 100.00 (62.14)

INKA Internationale Kapitalanlagegesellschaft

mbH

100.00 (99.99)

Inmobiliaria Bisa, S.A. de C.V. 99.98

Inmobiliaria Grufin, S.A. de C.V. 100.00 (99.99)

Inmobiliaria Guatusi, S.A. de C.V. 100.00 (99.99)

James Capel (Nominees) Limited 100.00

James Capel (Taiwan) Nominees Limited 100.00

John Lewis Financial Services Limited 100.00

Keyser Ullmann Limited 100.00 (99.99)

Lion Corporate Services Limited 100.00

Lion International Corporate Services Limited 100.00

1, 151

Lion International Management Limited 100.00

151

Lion Management (Hong Kong) Limited 100.00

1, 48

Lyndholme Limited 100.00

Marks and Spencer Financial Services plc 100.00

152

Marks and Spencer Unit Trust Management

Limited

100.00

152

Midcorp Limited 100.00

Midland Bank (Branch Nominees) Limited 100.00

Midland Nominees Limited 100.00

MP Payments Group Limited 100.00

1, 16

MP Payments Netherlands B.V.

100.00

1, 153

MP Payments Operations Limited

100.00

1, 16

MP Payments Singapore Pte. Ltd. 100.00

1, 154

MP Payments UK Limited 100.00

1, 16

MW Gestion SA 100.00

Prudential Client HSBC GIS Nominee (UK)

Limited

100.00

PT Bank HSBC Indonesia 99.99 (98.93)

155

PT HSBC Sekuritas Indonesia 100.00 (85.00)

155

R/CLIP Corp. 100.00

Real Estate Collateral Management Company 100.00

Republic Nominees Limited 100.00

RLUKREF Nominees (UK) One Limited 100.00

1, 16

RLUKREF Nominees (UK) Two Limited 100.00

1, 16

S.A.P.C. - Ufipro Recouvrement 99.99

11, 37

Saf Baiyun 100.00 (99.99)

4, 37

Saf Guangzhou 100.00 (99.99)

4, 37

SCI HSBC Assurances Immo 100.00 (99.99)

11, 59

Serai Limited 100.00

Serai Technology Development (Shanghai)

Limited (丝睿科技开发（上海）有限公司)

N/A

0, 1, 12,

156

SFM 100.00 (99.99)

4, 37

SFSS Nominees (Pty) Limited 100.00

136

Shandong Rongcheng HSBC Rural Bank

Company Limited

N/A

0, 12, 157

Shenzhen HSBC Development Company Ltd

N/A

0, 1, 12,

158

Sico Limited 100.00

159

SNC Les Oliviers D'Antibes 60.00 (59.99)

11, 59

SNCB/M6-2008 A 100.00 (99.99)

4, 37

SNCB/M6-2007 A 100.00 (99.99)

4, 37

SNCB/M6-2007 B 100.00 (99.99)

4, 37

Société Française et Suisse 100.00 (99.99)

4, 37

Somers Dublin DAC 100.00 (99.99)

127

Somers Nominees (Far East) Limited 100.00

Sopingest 100.00 (99.99)

4, 37

South Yorkshire Light Rail Limited 100.00

St Cross Trustees Limited 100.00

Sterling Credit Limited 100.00

183

Sun Hung Kai Development (Lujiazui III)

Limited

N/A

0, 12, 160

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Notes on the financial statements

430 HSBC Holdings plc Annual Report and Accounts 2023

Swan National Limited (In Liquidation) 100.00

The Hongkong and Shanghai Banking

Corporation Limited

100.00

5, 48

The Venture Catalysts Limited (In Liquidation) 100.00

Tooley Street View Limited 100.00

2, 16

Trinkaus Europa Immobilien-Fonds Nr.3

Objekt Utrecht Verwaltungs-GmbH

100.00 (99.99)

6, 92

Trinkaus Immobilien-Fonds

Geschaeftsfuehrungs-GmbH

100.00 (99.99)

6, 92

Trinkaus Immobilien-Fonds Verwaltungs-

GmbH

100.00 (99.99)

6, 92

Trinkaus Private Equity Management GmbH 100.00 (99.99)

6, 92

Trinkaus Private Equity Verwaltungs GmbH 100.00 (99.99)

6, 92

Turnsonic (Nominees) Limited 100.00

Valeurs Mobilières Elysées 100.00 (99.99)

4, 37

Wardley Limited 100.00

Wayfoong Nominees Limited 100.00

Westminster House, LLC N/A

0, 15

Woodex Limited 100.00

Yan Nin Development Company Limited 100.00 (62.14)

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Joint ventures

The undertakings below are joint ventures and equity accounted.

Joint ventures

% of share class

held by

immediate parent

company (or by

the Group where

this varies)

Footnotes

Climate Asset Management Limited

40.00

1, 161

Global Payments Technology Mexico S.A. De

C.V

50.00

162

HCM Holdings Limited (In Liquidation) 50.99

MK HoldCo Limited

50.32

1, 163

Pentagreen Capital Pte. Ltd

50.00

1, 164

ProServe Bermuda Limited 50.00

165

The London Silver Market Fixing Limited N/A

0, 1, 166

Vaultex UK Limited 50.00

167

Associates

The undertakings below are associates and equity accounted.

Associates

% of share class

held by

immediate parent

company (or by

the Group where

this varies)

Footnotes

Bank of Communications Co., Ltd. 19.03

168

Barrowgate Limited 15.31

169

BGF Group plc 24.62

170

Bud Financial Limited 4.84

1, 171

Canara HSBC Life Insurance Company

Limited

26.00

172

Contour Pte Ltd

9.87

1, 173

Divido Financial Services Limited

7.70

1, 174

Electronic Payment Services Company (Hong

Kong) Limited

38.66

Episode Six Inc. 5.69

1, 175

EPS Company (Hong Kong) Limited 38.66

Euro Secured Notes Issuer 16.67

176

HSBC Jintrust Fund Management Company

Limited

N/A

0, 177

HSBC UK Covered Bonds (LM) Limited 20.00

1, 178

HSBC UK Covered Bonds LLP N/A

0, 1, 18

Liquidity Match LLC N/A

0, 1, 179

London Precious Metals Clearing Limited 30.00

1, 180

MENA Infrastructure Fund (GP) Ltd 33.33

181

Monese Ltd 5.39

1, 182

Quantexa Ltd 9.36

183

RadiantESG Global Investors LLC N/A

0, 1, 184

Saudi Awwal Bank 31.00

186

Services Epargne Entreprise 14.18

187

The London Gold Market Fixing Limited N/A

0, 188

Threadneedle Software Holdings Limited 7.10

1, 189

Trade Information Network Limited 12.76

1, 161

Trinkaus Europa Immobilien-Fonds Nr. 7

Frankfurt Mertonviertel KG

N/A

0, 92

We Trade Innovation Designated Activity

Company (In Liquidation)

9.88

1, 190

HSBC Holdings plc Annual Report and Accounts 2023 431

Financial statements

Footnotes for Note 40

Description of shares

Where an entity is governed by voting rights, HSBC consolidates

when it holds – directly or indirectly – the necessary voting rights

to pass resolutions by the governing body. In all other cases, the

assessment of control is more complex and requires judgement of

other factors, including having exposure to variability of returns,

power to direct relevant activities, and whether power is held as

an agent or principal. HSBC’s consolidation policy is described in

Note 1.2(a).

1 Management has determined that these undertakings are

excluded from consolidation in the Group accounts as these

entities do not meet the definition of subsidiaries in accordance

with IFRS. HSBC’s consolidation policy is described in Note 1.2(a).

Directly held by HSBC Holdings plc

Preference Shares

Actions

Redeemable Preference Shares

GmbH Anteil

Limited and Unlimited Liability Shares

Liquidating Share Class

Nominal Shares

Non-Participating Voting Shares

Parts

Registered Capital Shares

Russian Limited Liability Company Shares

Stückaktien

15 c/o The Corporation Trust Company, 1209 Orange Street,

Wilmington, Delaware, United States of America, 19801

8 Canada Square, London, United Kingdom, E14 5HQ

17 Paseo de la Reforma 347 Col. Cuauhtemoc, Mexico, 06500

1 Centenary Square, Birmingham, United Kingdom, B1 1HQ

C/O Teneo Financial Advisory Limited, The Colmore Building, 20

Colmore Circus, Queensway, Birmingham, United Kingdom, B4

6AT

20 5 Donegal Square South , Northern Ireland, Belfast, United

Kingdom, BT1 5JP

21 1909 Avenida Presidente Juscelino Kubitschek, 19° andar, Torre

Norte, São Paulo Corporate Towers, São Paulo, Brazil, 04551-903

22 Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1

3NF

37 Front Street, Harbourview Centre, Ground Floor, Hamilton,

Pembroke, Bermuda, HM 11

HSBC Main Building, 1 Queen's Road Central, Hong Kong

25 2401-55 24/F, Office Tower Two 1 Jianguomenwai Street,

Chaoyang District, Beijing, China

26 First Floor, Xinhua Bookstore Xindong Road (SE of roundabout),

Miyun District, Beijing, China

27 Oak House Hirzel Street, St Peter Port, Guernsey, GY1 2NP

28 2929 Walden Avenue, Depew, New York, United States of

America, 14043

29 Corporation Service Company 251 Little Falls Drive, Wilmington,

Delaware, United States of America, 19808

Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, P.O. Box

17 5476 Mar Michael, Beyrouth, Lebanon, 11042040

No 1, Bei Huan East Road Dazu County, Chongqing, China

No 107 Ping Du Avenue (E), Sanhe Town, Fengdu County,

Chongqing, China

No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang,

Chongqing, China, 402460

34 c/o Walkers Corporate Services Limited Walker House, 87 Mary

Street, George Town, Grand Cayman, Cayman Islands, KY1-9005

Registered offices

35 First & Second Floor, No.3 Nanshan Road, Pulandian, Dalian,

Liaoning, China

36 160 Mine Lake CT, Ste 200, Raleigh, North Carolina, United

States of America, 27615-6417

38 Avenue Kléber, Paris, France, 75116

38 Avenida de las Granjas 972, Building A, Floor 2, Colonia Santa

Bárbara, Alcaldía Azcapotzalco, Mexico City, Mexico, 02230

No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China

83 Des Voeux Road Central, Hong Kong

No. 44 Xin Ping Road Central, Encheng, Enping, Guangdong,

China, 529400

42 Room 311, Cheng Hui No. 2, Nan Sha Street, Nan Sha District,

Guangzhou, Guangdong, China

43 34/F, 36/F, Unit 031 of 45/F, and 46/F, Hang Seng Bank Tower

1000 Lujiazui Ring Road, Pilot Free Trade Zone, Shanghai, China,

200120

44 Gustav Mahlerplein 2 1082 MA, Amsterdam, Netherlands

45 1001 T2 Office Building, Qianhai Kerry Business Center, Qianhai

Avenue, Nanshan Street, Qianhai Shenzhen-Hong Kong

Cooperation Zone, Shenzhen, Guangdong, China

46 1 Queen’s Road Central, Hong Kong

47 Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town,

Tortola, British Virgin Islands, VG1110

1 Queen's Road Central, Hong Kong

156 C/O Teneo Financial Advisory Limited, Great Charles Street,

Queensway, West Midlands, Birmingham, United Kingdom, B3

3HN

50 701 S CARSON ST STE 200, Carson City, Nevada, United States

of America, 89701

HSBC House Esplanade, St. Helier, Jersey, JE4 8UB

Level 21, Menara IQ, Lingkaran TRX, Tun Razak Exchange, Kuala

Lumpur, Malaysia, 55188

Level 19, Menara IQ, Lingkaran TRX, Tun Razak Exchange, Kuala

Lumpur, Malaysia, 55188

54 10 Marina Boulevard, #48-01 Marina Bay Financial Centre,

Singapore, 018983

55 52/60, M G Road Fort, Mumbai, India, 400 001

557 Bouchard Level 20, Ciudad de Buenos Aires, Federal Capital,

Argentina, C1106ABG

9-11 Floors, NESCO IT Park Building No. 3 Western Express

Highway, Goregaon (East), Mumbai, India, 400063

HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo,

Japan, 103-0027

Immeuble Cœur Défense 110 esplanade du Général de Gaulle,

Courbevoie, France, 92400

Level 36 Tower 1 International Towers Sydney, 100 Barangaroo

Avenue, Sydney, New South Wales, Australia, 2000

Isidora Goyenechea 2800 23rd floor, Las Condes, Santiago,

Chile, 7550647

HSBC Building Shanghai ifc, 8 Century Avenue, Pudong,

Shanghai, China, 200120

IconEbene, Level 5 Office 1 (West Wing), Rue de L’institut,

Ebene, Mauritius

64 2 Paveletskaya Square Building 2, Moscow, Russia, 115054

54F, 7 Xinyi Road Sec. 5 Xinyi District, Taipei, Taiwan

1266 Dr Luis Bonativa 1266 Piso 30 (Torre IV WTC), Montevideo,

Uruguay, CP 11.000

67 The Metropolitan 235 Dong Khoi Street, District 1, Ho Chi Minh

City, Vietnam

Esentepe Mah. Büyükdere Caddesi No.128 Şişli, Istanbul,

Turkiye, 34394

90 Area 42 Paronyan Street, Yerevan, Armenia, 0015

885 West Georgia Street 3rd Floor, Vancouver, British Columbia,

Canada, V6C 3E9

306 Corniche El Nil, Maadi, Egypt, 11728

Registered offices

Notes on the financial statements

432 HSBC Holdings plc Annual Report and Accounts 2023

116 Archbishop Street, Valletta, Malta

Unit 401, Level 4 Gate Precinct Building 2, Dubai International

Financial Centre, P. O. Box 30444, Dubai, United Arab Emirates

Majer Consulting, Office 54/44, Building A1, Residence Ryad

Anfa, Boulevard Omar El Khayam, Casa Finance City (CFC),

Casablanca, Morocco

1800 Tysons Boulevard Suite 50, Tysons, Virginia, United States

of America, 22102

66 Wellington Street West, Suite 5300, Toronto, Ontario,

Canada, M5K 1E6

P.O. Box 1109, Strathvale House, Ground floor, 90 North Church

Street, George Town, Grand Cayman, Cayman Islands, KY1-1102

HSBC House Esplanade, St. Helier, Jersey, JE1 1HS

RM 2113 HSBC Building, Shanghai ifc, No. 8 Century Avenue,

Pudong, Shanghai, China, 200120

c/o Rogers Capital St. Louis Business Centre, Cnr Desroches &

St Louis Streets, Port Louis, Mauritius

49 avenue J.F. Kennedy, Luxembourg, 1855

4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian

He District, Guangzhou, Guangdong, China

Suite 1005, 10th Floor, Wisma Hamzah Kwong, Hing No. 1,

Leboh Ampang, Kuala Lumpur, Malaysia, 50100

Building C-1 UP Ayala Technohub, Commonwealth Avenue,

Diliman, Quezon City, Metro Manila, Philippines

HSBC House Plot No.8 Survey No.64 (Part), Hightec City Layout

Madhapur, Hyderabad, India, 500081

Mireka City 324/9 Havelock Road, Colombo 05, Sri Lanka, 00500

Smart Village 28th Km Cairo- Alexandria Desert Road Building,

Cairo, Egypt

16 York Street, 6th Floor, Toronto, Ontario, Canada, M5J 0E6

Centre Ville 1341 Building - 4th Floor Patriarche Howayek Street,

PO Box Riad El Solh, Lebanon, 9597

World Trade Center Montevideo Avenida Luis Alberto de Herrera

1248, Torre 1, Piso 15, Oficina 1502, Montevideo, Uruguay, CP

11300

Room 655, Building A, No.888 Huan Hu West 2nd Road, Lingang

New Area, China (Shanghai) Pilot Free Trade Zone, Shanghai,

China

Hansaallee 3, Düsseldorf, Germany, 40549

80 Mill Street, Qormi, Malta, QRM 3101

Gartenstrasse 26, Zurich, Switzerland, 8002

36F., No. 68 Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City,

Taiwan, 110419

452 Fifth Avenue, New York, United States of America, NY10018

Bouchard 557, Piso 18° , Cdad. Autónoma de Buenos Aires,

Argentina, 1106

Mareva House 4 George Street, Nassau, Bahamas

1 Queen’s Road Central, Hong Kong

100

4 rue Peternelchen, Howald, Luxembourg, 2370

101

Alphabeta 14-18 Finsbury Square, London, United Kingdom,

EC2A 1BR

102

IConEbene Rue de L’institut, Ebene, Mauritius

103

HSBC Main Building, 1 Queen's Road Central, Hong Kong

104

18th Floor Tower 1, HSBC Centre 1 Sham Mong Road, Kowloon,

Hong Kong

105

37 Front Street, Harbourview Center, Ground Floor, Hamilton,

Pembroke, Bermuda, HM 11

106

CT Corporation System 28 Liberty Street, New York, New York,

United States of America, 10005

107

Unit 201, Floor 2, Building 3 No. 12, Anxiang Street, Shunyi

District, Beijing, China

108

HSBC Main Building, 1 Queen’s Road Central, Hong Kong

109

37 Front Street, Harbourview Centre, Ground Floor, Hamilton

Pembroke, Bermuda, HM 11

Registered offices

110

300 Delaware Avenue Suite 1401, Wilmington, Delaware, United

States of America, 19801

111

Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.

Box 916

112

Craigmuir Chambers, Road Town Tortola, British Virgin Islands,

VG1110

113

52/60 M G Road Fort, Mumbai, India, 400 001

114

5/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City,

Taguig City, Philippines

115

300-885 West Georgia Street, Vancouver, British Columbia,

Canada, V6C 3E9

116

18 Boulevard de Kockelscheuer, Luxembourg, 1821

117

Unit 2002 of 20/F, Unit 2101 of 21/F HSBC Building, 8 Century

Avenue, China (Shanghai) Pilot Free Trade Zone, Shanghai,

China, 200120

118

Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1

1WA

119

HSBC Tower, Downtown Dubai, P.O. Box 66. United Arab

Emirates

120

Unit 401, Level 4, Gate Precinct Building 2, Dubai International

Financial Centre, P. O. Box 506553, Dubai, United Arab Emirates

121

Level 16, HSBC Tower, Downtown Dubai, P.O. Box 66, United

Arab Emirates

122

885 West Georgia Street, Suite 300, Vancouver, British

Columbia, Canada, V6C 3E9

123

HSBC Tower, Level 21, 188 Quay Street, Auckland, New

Zealand, 1010

124

The Corporation Trust Incorporated, 2405 York Road, Suite 201,

Lutherville Timonium, Maryland, United States of America,

21093

125

HSBC House Esplanade, St. Helier, Jersey, JE1 1GT

126

Quai des Bergues 9-17 , Geneva, Switzerland, 1201

127

1 Grand Canal Square Grand Canal Harbour, Dublin 2, Ireland,

D02 P820

128

6th floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201

129

Esentepe Mah. Büyükdere Caddesi No.128, 34394, Şişli,

Istanbul, Turkiye

130

Quai des Bergues 9-17, Geneva, Switzerland, 1201

131

5 rue Heienhaff, Senningerberg, Luxembourg, L-1736

132

52/60 M G Road, Fort, Mumbai, India, 400 001

133

Unit 2201, 22/F, Qianhai Chow Tai Fook Finance Tower (Phase I)

No. 66 Shu Niu Avenue, Nanshan Subdistrict, the Shenzhen

Qianhai Shenzhen-Hong Kong Cooperation Zone, the PRC,

Shenzhen, China, 518054

134

HSBC Building 7267 Olaya - Al Murrooj , Riyadh, Kingdom of

Saudi Arabia, 12283 - 2255

135

Unit 1 GF The Commerical Complex Madrigal Avenue, Ayala

Alabang Village, Muntinlupa City, Philippines, 1780

136

1 Mutual Place, 107 Rivonia Road, Sandton, Gauteng, South

Africa, 2196

137

Kapelanka 42A , Krakow, Poland, 30-347

138

Mareva House, 4 George Street, Nassau, Bahamas

139

C T Corporation System 820 Bear Tavern Road, West Trenton,

New Jersey, United States of America, 08628

140

L22, Office Tower 2, Taikoo Hui, 381 Tianhe Road, Tianhe

District, Guangzhou, Guangdong, China

141

Business Bay, Wing 2 Tower B, Survey no 103, Hissa no. 2,

Airport Road, Yerwada, Pune, India, 411006

142

Room 3102, L31 HSBC Building, Shanghai ifc, 8 Century Avenue,

China (Shanghai) Free Trade Zone, Shanghai, China, 200120

143

16 Boulevard d'Avranches, Luxembourg, L-1160

144

3 Hansaallee, Düsseldorf, Nordrhein-Westfalen, Germany, 40549

145

P.O. Box 309 Ugland House, Grand Cayman, Cayman Islands,

KY1-1104

Registered offices

HSBC Holdings plc Annual Report and Accounts 2023 433

Financial statements

146

c/o Teneo Financial Advisory Limited The Colmore Building, 20

Colmore Circus, Queensway, Birmingham, United Kingdom, B4

6AT

147

No. 56 Yu Rong Street, Macheng, China, 438300

148

No. 205 Lie Shan Road, Suizhou, Hubei, China

149

Building 3, Yin Zuo Di Jing Wan Tianmen New City, Tianmen,

Hubei Province, China

150

RM101, 102 & 106 Sunshine Fairview, Sunshine Garden,

Pedestrian Walkway, Pingjiang, China

151

Craigmuir Chambers, Road Town, Tortola, British Virgin Islands,

VG1110

152

Kings Meadow Chester Business Park, Chester, United

Kingdom, CH99 9FB

153

De Entree, 236 , Amsterdam, Netherlands, 1101 EE

154

10 Marina Boulevard, #48-01 Marina Bay Financial Centre,

Singapore, 018983

155

5th Floor, World Trade Center 1, Jl. Jend. Sudirman Kav. 29-31,

Jakarta, Indonesia, 12920

156

Room 667, 6/F, Tower A, No. 8 Century Avenue, Pudong District,

Shanghai, China

157

No.198-2 Chengshan Avenue (E), Rongcheng, China, 264300

158

Room 1303-13062 Marine Center Main Tower, 59 Linhai Rd,

Nanshan District, Shenzhen, China

159

Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.

Box 3162

160

RM 2112, HSBC Building, Shanghai ifc No. 8 Century Road,

Pudong, Shanghai, China, 200120

161

3 More London Riverside, London, United Kingdom, SE1 2AQ

162

296, Floor 18, Office A Paseo de la Reforma, Mexico City,

Mexico, 06600

163

35 Ballards Lane, London, United Kingdom, N3 1XW

164

1 Raffles Quay #23-01, Singapore, 048583

165

c/o MUFG Fund Services (Bermuda) Limited, Cedar House, 4th

Floor North, 41 Cedar Avenue, Hamilton, Bermuda, HM12

166

27 Old Gloucester Street, London, United Kingdom, WC1N 3AX

167

All Saints Triangle Caledonian Road, London, United Kingdom,

N1 9UT

Registered offices

168

188 Yin Cheng Zhong Lu (Shanghai) Pilot Free Trade Zone, China

169

50/F, Lee Garden One, 33 Hysan Avenue, Hong Kong

170

13-15 York Buildings, London, United Kingdom, WC2N 6JU

171

167-169 Great Portland Street, 5th Floor, London, United

Kingdom, W1W 5PF

172

Unit No. 208, 2nd Floor, Kanchenjunga Building, 18 Barakhamba

Road, New Delhi, India, 110001

173

1 Harbourfront Avenue, #14-07 Keppel Bay Tower, Singapore,

098632

174

Office 7, 35-37 Ludgate Hill, London, United Kingdom, EC4M

7JN

175

251 Little Falls Drive, New Castle, Wilmington, United States of

America, 19808

176

3 Avenue de l'Opera , Paris, France, 75001

177

17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong,

Shanghai, China

178

10th Floor 5 Churchill Place, London, United Kingdom, E14 5HU

179

100 Town Square Place, Suite 201, Jersey City, New Jersey,

United States of America, 07310

180

7th Floor, 62 Threadneedle Street, London, United Kingdom,

EC2R 8HP

181

Unit 705, Level 7, Currency House-Tower 2, Dubai International

Financial Centre, P.O. BOX 506553, Dubai, United Arab Emirates

182

Eagle House, 163 City Road, London, United Kingdom, EC1V

1NR

183

Hill House, 1 Little New Street, London, United Kingdom, EC4A

3TR

184

4482 Deer Ridge Road, Danville, CA, Delaware, United States of

America, 94506

185

9004 Al Ulaya - Al Olaya Dis. Unit no. 1, Riyadh, Kingdom of

Saudi Arabia, 12214-2652

186

7206 Prince Abdul Aziz Bin Musaid Bin Jalawi, 4065 Al Murabba

District, 12613 Riyadh, Kingdom of Saudi Arabia

187

32 Rue du Champ de Tir, Nantes, France, 44300

188

c/o Hackwood Secretaries Limited, One Silk Street, London,

United Kingdom, EC2Y 8HQ

189

2nd Floor, Regis House, 45 King William Street, London, United

Kingdom, EC4R 9AN

190

10 Earlsfort Terrace, Dublin, Ireland, D02 T380

191

Meeting Room 18.R005, 18/F Fortune Financial Center, No. 5

Dongsanhuan Zhong Road, Chaoyang District, Beijing, 100020,

China

192

P.O. Box, 309 Ugland House, Grand Cayman, Cayman Islands,

KY1-1104

Registered offices

Notes on the financial statements

434 HSBC Holdings plc Annual Report and Accounts 2023