HSBC Performance

In January 2024, we published our first net zero transition plan, which is an important milestone in our journey to achieving our net zero ambition – helping our people, customers, investors and other stakeholders to understand our long-term vision, the challenges, uncertainties and dependencies that exist, the progress we are making and what we plan to do in the future.

The plan includes details on our sectoral approach, and on our implementation plan to embed net zero across key areas of our organisation.

Following the recent launch of the Partnership for Carbon Accounting Financials (‘PCAF’) accounting standard for capital markets, we have now set combined on-balance sheet financed emissions and facilitated emissions targets for two emissions-intensive sectors: oil and gas, and power and utilities, and report the combined progress for both sectors.

Since 2020, we have provided and facilitated $294.4bn of sustainable finance and investment, which was an increase of $83.7bn in the past year.

Of our sustainable finance and investment progress to 31 December 2023, $258.3bn related to green and sustainable activities and $36.1bn related to social activities.

Within our own operations, we have made a 57.3% reduction in our absolute greenhouse gas emissions from a 2019 baseline.

During 2023, we continued to acquire businesses that allow us to build scale and enhance our capabilities.

In March, we acquired SVB UK, and subsequently launched HSBC Innovation Banking, which includes SVB UK and new teams in the US, Hong Kong and Israel, as well as in Denmark and Sweden, to deliver a globally connected, specialised banking proposition to support innovation businesses and their investors.

As part of our ambition to be a leading wealth provider in Asia, we entered into an agreement to acquire Citi’s retail wealth management portfolio in mainland China.

We continue to make good progress on our strategic disposals.

The planned sale of our banking business in Canada received government approval and is expected to complete in the first quarter of 2024.

We completed the sale of our retail banking operations in France on 1 January 2024, as we reshape the organisation to focus on our international customer base.

This reflected lower restructuring and other related costs and higher revenue, partly offset by the impact of an impairment of our investment in BoCom.

This impairment reflects a reduction to the accounting value-in-use in line with recent market-wide developments in mainland China.

Impairment of interest in associate of $3.0bn related to our investment in BoCom.

Recent macroeconomic, policy and industry factors resulted in a wider range of reasonably possible value-in-use outcomes for our BoCom valuation.

At 31 December 2023, the Group performed an impairment test on the carrying value which resulted in an impairment of $3.0bn, as the recoverable amount as determined by a value-in-use calculation was lower than the carrying value.

This impairment will have no material impact on HSBC’s capital, capital ratios or distribution capacity, and therefore no impact on dividends or share buy-backs.

Our ambition is to maintain strong, resilient returns through the interest rate cycle.

As part of our balance sheet structural hedging and risk management strategy we continue to seek opportunities to stabilise future earnings and mitigate downside risk from interest rate movements.

During 2023, we took actions to increase the size and duration of our structural hedge.

This has the effect of stabilising our future earnings and contributed to a reduction in the sensitivity of banking net interest income (‘NII’), a new alternative performance measure introduced in 2023, from changes in interest rates.

Banking NII adjusts our NII, primarily for the impact of funding trading and fair value activities reported in interest expense.

Management uses these measures to determine the deployment of our surplus funding, and to help optimise our structural hedging and risk management actions.

We aim to be a top-three bank for customer satisfaction.

In 2023, we were ranked as a top three bank against our competitors in 58% of our six key markets across Wealth and Personal Banking and Commercial Banking, but we still have work to do to improve our rank position against competitors.

We published guides to help our buyers and our suppliers better understand our net zero ambitions.

The guides provide further details to support suppliers in understanding our sustainability expectations, as set out in our supplier code of conduct.

We continued to raise awareness and develop our understanding of our salient human rights issues.

In 2023, we provided practical guidance and training, where relevant, to our colleagues across the Group, on how to identify and manage human rights risk.

We aspire to be an organisation that is representative of the communities in which we serve.

We have committed to achieving a 35% representation of women in senior leadership roles (classified as those at band 3 and above in our global career band structure) by 2025.

We remain on track, having achieved 34.1% in 2023.

We aspire to achieve a 3.4% representation of Black heritage colleagues in senior leadership roles across the UK and US combined by 2025.

We are on track to achieve this, having increased our representation to 3.0% this year.

We have enabled 91% of our colleagues to disclose their ethnicity, with 62% currently choosing to do so, where this is legally permissible.

In 2023, 34.1% of senior leadership roles were held by women.

We have a target to achieve 35% by 2025, which we are on track to achieve, although we recognise that progress in the past year has not been as fast paced as we would like.

We also continued to work towards meeting our ethnicity goals.

We continue to make the banking experience more accessible in both physical and digital spaces.

We are working to ensure that our digital channels are usable by everyone, regardless of ability.

We also expanded our efforts to support customers with disabilities in our branch spaces.

The increase reflected incremental costs in HSBC Innovation Banking of $0.3bn including the acquisition and integration of SVB UK, higher performance-related pay, ongoing investment in technology and inflationary impacts.

These increases were in part mitigated by the impact of continued cost discipline and a reduction in restructuring and other related costs following the completion of our cost-saving programme at the end of 2022.

Operating expenses of $32.1bn were $0.6bn or 2% lower than in 2022, including a favourable impact of $0.4bn from foreign currency translation differences.

This was driven by lower restructuring and other related costs following the completion of our cost to achieve programme, which concluded at the end of 2022, as well as a $0.2bn reduction due to a reversal of historical asset impairments, and the effects of our continued cost discipline.

These reductions were partly offset by an increase in technology costs, the impacts of inflation, a higher performance-related pay accrual and severance payments.

There may be times when our colleagues need to speak up about behaviours in the workplace.

In the first instance we encourage colleagues to speak to their line manager, and our annual Snapshot survey showed that 86% of colleagues have trust in their direct manager.

HSBC Confidential is our whistleblowing channel, which allows colleagues past and present to raise concerns confidentially and, if preferred, anonymously (subject to local laws).

Our Snapshot survey showed that 80% of colleagues feel able to speak up when they see behaviours they consider to be wrong.

We promote an environment where our colleagues are treated with dignity and respect and we act where we find behaviours that fall short.

On consolidation, this funding is eliminated in Corporate Centre, resulting in an increase in the funding costs reported in net interest income with an equivalent offsetting increase in ‘net income from financial instruments held for trading or managed on a fair value basis’ in this segment.

In the second quarter of 2023 we implemented a consistent reporting approach across our most material entities that contribute to our trading and fair value net assets, which resulted in an increase to the first half of 2023 associated funding costs reported through the intersegment elimination in Corporate Centre of approximately $0.4bn, recognised in the second quarter of 2023.

In the consolidated Group results, the cost to fund these trading and fair value net assets is reported in net interest income.

The internally allocated funding cost of $8.7bn, which was incurred in 2023 to generate trading and fair value income, related to trading, fair value and associated net asset balances predominantly in GBM.

The decrease was predominantly driven by the impact of higher funding costs across our liabilities, which included the impact of deposit migration in our main legal entities in Asia and Europe.

The decreases were predominantly driven by a rise in funding costs of average interest-bearing liabilities, which included the impact of customer deposit migration in our main legal entities in Asia and Europe, as well as the Argentina hyperinflation impact as noted above, partly offset by an increase in the yield on AIEA.

This reflected an increase in funding costs of 223bps, mainly due to the impact of higher interest rates on our liabilities including customer deposit migration, notably in Asia and Europe.

The increase was predominantly driven by the impact of higher market interest rates, and the impact of deposit migration.

In 2024, we will target growth of approximately 5% compared with 2023, on a target basis (2023: $31.1bn).

This target reflects our current business plan for 2024, and includes an increase in staff compensation, higher technology spend and investment for growth and efficiency, in part mitigated by cost savings from actions taken during 2023.

Our cost target basis for 2024 excludes the direct cost impact of the disposal in France and the planned disposal in Canada from the 2023 baseline.

Costs grew by an additional 1%, primarily due to a charge relating to the FDIC special assessment.