HSBC : Pillar 3 Disclosures at 30 September 2022

HSBC Holdings p lc

Pillar 3 Disclosures at 30 September 2022

Pillar 3 Disclosures at 30 September 2022

Contents

	Page
Introduction	2
Highlights	3
Key metrics	4
Capital	5
Approach and policy	5
Regulatory reporting developments	5
Risk-weighted assets	6
Credit risk (including amounts below the thresholds for deduction)	6
Counterparty credit risk	6
Securitisation	6
Market risk	6
Operational risk	6
Minimum requirement for own funds and eligible liabilities	8
Liquidity	11
Cautionary statement regarding forward-looking statements	13
Abbreviations	15
Contacts	16

Unless the context requires otherwise, 'HSBC Holdings' means HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our' refer to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'. When used in the terms 'shareholders' equity' and 'total shareholders' equity', 'shareholders' means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings classified as equity. The abbreviations '$m' and '$bn' represent millions and billions (thousands of millions) of US dollars respectively.

This document should be read in conjunction with the Earnings Release 3Q22, which has been published on our website at www.hsbc.com/investors.

• HSBC Holdings plc Pillar 3 Disclosures at 30 September 2022

Introduction

Pillar 3 disclosures regulatory framework

Our Pillar 3 Disclosures at 30 September 2022 comprises both quantitative and qualitative information required under Pillar 3. These disclosures are made in accordance with part Eight of the Capital Requirements Regulation ('CRR') and Directive, as implemented ('CRR II') and the Prudential Regulation Authority ('PRA') Rulebook, and use the PRA's disclosure templates and instructions which came into force on 1 January 2022. They are supplemented by specific additional requirements of the PRA and discretionary disclosures on our part.

We are supervised on a consolidated basis in the UK by the PRA, which receives information on the capital adequacy of, and sets capital requirements for, the Group as a whole. Individual banking subsidiaries are directly regulated by their local banking supervisors, which set and monitor their local capital adequacy requirements. In most jurisdictions, non-banking financial subsidiaries are also subject to the supervision and capital requirements of local regulatory authorities.

The Basel III framework is structured around three 'pillars', with the Pillar 1 minimum capital requirements and Pillar 2 supervisory review process complemented by Pillar 3 market discipline. The aim of Pillar 3 is to produce disclosures that allow market participants to assess the scope of application by banks of the Basel framework and the rules in their jurisdiction, their capital condition, risk exposures and risk management processes, and hence their capital adequacy.

At a consolidated Group level, capital is calculated for prudential regulatory reporting purposes using the Basel III framework of the Basel Committee on Banking Supervision ('Basel'), as implemented in the UK. Any references to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation and/or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, including any subsequent amendments. The regulators of the Group's banking entities outside the UK are at varying stages of implementing the Basel framework, so local regulations may have been on the basis of Basel I, II or III.

To give insight into movements during the year, we provide comparative figures, commentary on variances and flow tables for capital requirements. In all tables where the term 'capital requirements' is used, this represents the minimum total capital charge set at 8% of risk-weighted assets ('RWAs') by article 92 of the Capital Requirements Regulation.

Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently submitted in regulatory filings. Where differences are significant, we will restate comparatives. Where disclosures have been enhanced, or are new, we do not generally restate or provide comparatives. Wherever specific rows and columns in the tables prescribed by the PRA or Basel are not applicable or immaterial to our activities, we omit them and follow the same approach for comparative disclosures.

Pillar 3 requirements may be met by inclusion in other disclosure media. Where we adopt this approach, references are provided to the relevant pages of the 3Q22 Earnings Release or to other documents.

Our Pillar 3 disclosures are governed by the Group's disclosure policy framework as approved by the Group Audit Committee.

Regulatory reporting processes and controls

The quality of regulatory reporting remains a key priority for management and regulators. We are progressing with a comprehensive programme to strengthen our processes, improve consistency, and enhance controls on various aspects of regulatory reporting. We have commissioned a number of independent external reviews, some at the request of our regulators, including one on our credit risk RWA reporting process, which is currently ongoing. These reviews have so far resulted in higher RWAs and changes to the liquidity coverage ratio ('LCR') through improvements in reporting accuracy. There may be further impacts on some of our regulatory ratios, such as the common equity tier 1 ('CET1') and LCR.

Tables

	Ref	Page
Key metrics (KM1/IFRS9-FL)	a	4
Own funds disclosure	b	5
Overview of RWAs (OV1)	b	6
RWAs by geographical region		7
RWA movement by geographical region by key driver		7
RWA flow statements of credit risk exposures under IRB
approach (CR8)		7
RWA flow statements of counterparty credit risk exposures under
the IMM (CCR7)		7
RWA flow statements of market risk exposures under the IMA
(MR2-B)		8
Key metrics of the European resolution group (KM2)		9
Key metrics of the Asian resolution group (KM2)		9
Key metrics of the US resolution group (KM2)		10
Level and components of HSBC Group consolidated liquidity		12
coverage ratio (LIQ1)

The Group has adopted the UK's regulatory transitional arrangements for IFRS 9 'Financial Instruments'. The application of the transitional arrangements to the disclosures is indicated in the table of contents as follows:

1. Some figures have been prepared on an IFRS 9 transitional basis. Details are provided in the table footnotes.
2. All figures have been prepared on an IFRS 9 transitional basis.

All other tables report numbers on the basis of the full adoption of IFRS 9.

HSBC Holdings plc Pillar 3 Disclosures at 30 September 2022

2

Pillar 3 Disclosures at 30 September 2022

Highlights

Common equity tier 1: $110.8bn and 13.4%1

121.4	115.8
						110.8
	14.1%
					13.6		13.4%
31 Mar 22			30 Jun 22	30 Sep 22
				CET1 ($bn)	____ CET1 %

• Capital figures and ratios are reported on a CRR II transitional basis for capital instruments.

Risk-weighted assets by risk type

$828.3bn (1H22: $851.7bn)

81.0

33.5

42.0

671.8

	Credit risk		Counterparty credit risk
	Market risk		Operational risk

Common equity tier 1 ratio movement, %

13.6

(0.3)0.2

(0.1)	0.0	0.0	13.4
	(0.1)

30 Jun 2022	Impact of French	Profits (net of	Change in RWAs	FX translation	Movements	Other	30 Sep 2022
	HFS¹	dividend		differences	through OCI
		accrual)²

1 Impact of the planned disposal of our retail banking operations in France includes post-threshold impacts.

• Regulatory profits, net of regulatory dividend accrual for the purposes of capital calculations. In the nine months to 30 September 2022, we accrued $5.7bn after excluding the impact of the deferred tax asset created in 2Q22 and loss on reclassification of the French retail banking operations to held for sale.This is equivalent to $0.28 per voting share.

The CET1 capital ratio of 13.4% fell 0.2 percentage points from 2Q22, including a 0.3 percentage point impact from the reclassification of our French retail banking operations to held for sale and a 0.1 percentage point impact from further losses in equity from financial instruments as yield curves steepened.

Excluding a decrease of $27.8bn due to foreign currency translation differences, RWAs increased by $4.4bn from 2Q22, predominantly attributed to asset size growth, partly offset by reductions due to risk parameter refinements and model updates.

While our CET1 position of 13.4% is below our medium-term target range of 14% to 14.5%, we intend to manage it back to within our target range by 1H23 through revenue growth and cost control, as well as through RWAs and capital actions. Once we are back within our target range, we intend to continue to manage capital efficiently, returning excess capital to shareholders where appropriate.

• HSBC Holdings plc Pillar 3 Disclosures at 30 September 2022

Key metrics

Key metrics (KM1/IFRS9-FL)

				At
		30 Sep	30 Jun	31 Mar	31 Dec	30 Sep
Ref		2022	2022	2022	2021	2021
	Available capital ($bn)1,2
1	Common equity tier 1 ('CET1') capital^	110.8	115.8	121.4	132.6	133.2
	CET1 capital as if IFRS 9 transitional arrangements had not been applied	110.5	115.4	121.0	131.8	132.5
2	Tier 1 capital^	130.5	137.5	143.9	156.3	156.9
	Tier 1 capital as if IFRS 9 transitional arrangements had not been applied	130.2	137.1	143.5	155.5	156.2
3	Total capital^	149.9	158.5	165.6	177.8	179.0
	Total capital as if IFRS 9 transitional arrangements had not been applied	149.6	158.1	165.2	177.0	178.3
	Risk-weighted asset ('RWAs') ($bn)2
4	Total RWAs	828.3	851.7	862.3	838.3	839.2
	Total RWAs as if IFRS 9 transitional arrangements had not been applied	828.1	851.4	862.0	837.4	838.6
	Capital ratios (%)2
5	CET1^	13.4	13.6	14.1	15.8	15.9
	CET1 as if IFRS 9 transitional arrangements had not been applied	13.3	13.6	14.0	15.7	15.8
6	Tier 1^	15.8	16.1	16.7	18.6	18.7
	Tier 1 as if IFRS 9 transitional arrangements had not been applied	15.7	16.1	16.6	18.6	18.6
7	Total capital^	18.1	18.6	19.2	21.2	21.3
	Total capital as if IFRS 9 transitional arrangements had not been applied	18.1	18.6	19.2	21.1	21.3
	Additional own funds requirements based on supervisory review and evaluation
	process ('SREP') as a percentage of RWAs (%)3
UK-7a	Additional CET1 SREP requirements	1.5	1.5	1.5	N/A	N/A
UK-7b	Additional AT1 SREP requirements	0.5	0.5	0.5	N/A	N/A
UK-7c	Additional T2 SREP requirements	0.7	0.6	0.6	N/A	N/A
UK-7d	Total SREP own funds requirements (TSCR ratio)	10.7	10.6	10.6	N/A	N/A
	Combined buffer requirement as a percentage of RWAs (%)2
8	Capital conservation buffer requirement	2.5	2.5	2.5	2.5	2.5
9	Institution specific countercyclical capital buffer	0.2	0.2	0.2	0.2	0.2
10	Global systemically important institution buffer	2.0	2.0	2.0	2.0	2.0
11	Combined buffer requirement	4.7	4.7	4.7	4.7	4.7
UK-11a	Overall capital requirements3	15.4	15.4	15.3	15.4	15.7
12	CET1 available after meeting the total SREP own funds requirements	7.3	7.6	8.1	9.8	9.7
	Leverage ratio^,2,3,4
13	Total exposure measure excluding claims on central banks ($bn)	2,414.8	2,484.2	2,532.9	N/A	N/A
14	Leverage ratio excluding claims on central banks (%)	5.4	5.5	5.7	N/A	N/A
	Average exposure measure excluding claims on central banks ($bn)	2,462.5	2,501.3	2,555.7	N/A	N/A
	Additional leverage ratio disclosure requirements2,3,4
14a	Fully loaded expected credit losses ('ECL') accounting model leverage ratio excluding	5.4	5.5	5.7	N/A	N/A
	claims on central banks (%)
14b	Leverage ratio including claims on central banks (%)^	4.7	4.8	4.9	N/A	N/A
14c	Average leverage ratio excluding claims on central banks (%)^	5.5	5.6	5.7	N/A	N/A
14d	Average leverage ratio including claims on central banks (%)^	4.7	4.8	4.9	N/A	N/A
14e	Countercyclical leverage ratio buffer (%)	0.1	0.1	0.1	N/A	N/A
EU-14d	Leverage ratio buffer requirement (%)	0.8	0.8	0.8	N/A	N/A
EU-14e	Overall leverage ratio requirements (%)	4.1	4.1	4.1	N/A	N/A
	Leverage ratio (under Capital Requirements Regulation)^,2,4
	Total leverage ratio exposure measure ($bn)	N/A	N/A	N/A	2,962.7	2,964.8
	Leverage ratio (%)	N/A	N/A	N/A	5.2	5.2
	Liquidity coverage ratio ('LCR')5 - Average
15	Total high-quality liquid assets ($bn)	662.9	676.7	688.3	689.5	684.3
UK-16a	Cash outflows - total weighted value ($bn)	667.3	665.4	663.1	662.6	655.8
UK-16b	Cash inflows - total weighted value ($bn)	170.4	164.4	161.6	167.0	169.4
16	Total net cash outflow ($bn)	496.9	500.9	501.5	495.5	486.5
17	LCR ratio (%)	133	135	137	139	141
	Liquidity coverage ratio ('LCR') - Period End
	Total high-quality liquid assets ($bn)	605.5	656.6	694.6	717.0	664.0
	LCR ratio (%)	127	134	134	138	135
	Net stable funding ratio ('NSFR')3,5
18	Total available stable funding ($bn)	1,538.8	1,566.5	1,596.6	N/A	N/A
19	Total required stable funding ($bn)	1,123.9	1,138.7	1,158.1	N/A	N/A
20	NSFR ratio (%)	137	138	138	N/A	N/A

• The references in this and subsequent tables identify lines prescribed in the relevant PRA template where applicable and where there is a value. ^ Figures have been prepared on an IFRS 9 transitional basis.
  1 Capital figures and ratios are reported on a CRR II transitional basis for capital instruments.
  2 From 30 September 2022, investments in non-financial institutions' subsidiaries or participations have been measured on an equity accounting basis as per UK CRR Prudential Consolidation provision article 18(7). Comparatives have not been restated as this change has no significant prior period impact on this disclosure.
  3 These disclosures have been implemented from 1 January 2022, and are based on the PRA's disclosure templates and instructions which came into force at that time. N/A in prior periods indicated that the disclosure is new or changed and no comparatives are being provided.
  4 The leverage ratio is calculated using the CRR II end point basis for capital. The 2021 comparative leverage exposures and ratios are separately reported based on the Capital Requirements Regulation rules in force at that time and include claims on central banks.
  5 From 30 September 2022, the LCR and NSFR ratios presented in this table are based on average value. The LCR is the average of the preceding 12 months for each quarter. The NSFR is the average of preceding quarters. Prior period numbers have been restated for consistency.
  For further details of our application of IFRS 9 transitional regulatory arrangements, refer to page 195 of the Annual Report and Accounts 2021.

HSBC Holdings plc Pillar 3 Disclosures at 30 September 2022

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