21380081EP12LC86CB82-2023-12-31-T01

Contents


	Strategic report
2	About us
3	Financial highlights
4	Key financial metrics
4	Business performance and KPIs
5	Our purpose and values
5	Our core strengths
5	Our strategy
7	Stakeholder engagement
9	Economic background and outlook
9	Financial summary
12	Risk overview
13	Risk environment
	Report of the Directors
15	Risk review
62	Corporate Governance Report
67	Directors' Report Disclosures table
68	Statement of Directors’ Responsibilities in respect of the financial statements
	Financial statements
69	Independent auditors' report to the member of HSBC UK Bank plc
76	Financial statements
85	Notes on the financial statements
	Other information
126	Reconciliation of alternative performance measures
127	Abbreviations

Presentation of information

This document comprises the Annual Report and Accounts 2023 for

HSBC UK Bank plc (‘the bank’ or 'the Company') and its subsidiaries

(together ‘HSBC UK’ or ‘the group’). ’We’, ‘us’ and ‘our’ refer to

HSBC UK Bank plc together with its subsidiaries. It contains the

Strategic Report, the Report of the Directors, the Statement of

Directors’ Responsibilities and Financial Statements, together with

the Independent Auditors’ Report, as required by the UK Companies

Act 2006. References to ‘HSBC Group’ or ‘the Group’ within this

document mean HSBC Holdings plc together with its subsidiaries.

A full list of abbreviations is provided on page 127.

HSBC UK is exempt from publishing information required by The

Capital Requirements Country-by-Country Reporting Regulations

2013, as this information is published by its ultimate parent, HSBC

Holdings plc. This information is available on the Group's website:

www.hsbc.com

Pillar 3 disclosures for HSBC UK are also available on

www.hsbc.com, under Investor Relations.

All narrative disclosures, tables and graphs within the Strategic

Report and Report of the Directors are unaudited unless otherwise

stated.

Our reporting currency is £ sterling. Unless otherwise specified, all £

symbols represent £ sterling and $ symbols represent US dollars. The

abbreviations '£m' and '£bn' represents millions and billions

(thousands of millions) of £ sterling.

This Annual Report and Accounts 2023 contains certain forward-

looking statements with respect to the financial condition, ESG

related matters, results of operations and business of the group,

including the strategic priorities; financial, investment and capital

targets; and HSBC UK’s ability to contribute to the HSBC Group’s

environmental, social and governance (‘ESG’) targets, commitments

and ambitions described herein.

Statements that are not historical facts, including statements about

the group’s beliefs and expectations, are forward-looking statements.

Words such as ‘expects’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’,

‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of

these words and similar expressions are intended to identify forward-

looking statements. These statements are based on current plans,

estimates and projections, and therefore no undue reliance should be

placed on them. Forward-looking statements apply only as of the date

they are made. HSBC UK makes no commitment to revise or update

any forward-looking statements to reflect events or circumstances

occurring or existing after the date of any forward-looking statement.

Forward-looking statements involve inherent risks and uncertainties.

Readers are cautioned that a number of factors, including ESG related

factors, could cause actual results to differ, in some instances

materially, from those anticipated or implied in any forward-looking

statement.


HSBC UK Bank plc Annual Report and Accounts 2023	1

About us

HSBC UK Bank plc is a public limited company with debt securities

traded on the London Stock Exchange. The Company is a ring-fenced

bank and wholly owned subsidiary of HSBC Holdings plc. We

leverage the rest of the HSBC Group network to support our

customers and help to grow revenue across key trade corridors

around the world.

HSBC UK, headquartered in Birmingham, has over 14.7 million active

customers and over 18,500 FTE employees in the UK. We are

supported by c.5,200 FTE employees in our service company, HSBC

Global Services (UK) Limited, who provide services to HSBC UK and

the wider HSBC Group.

HSBC UK provides products and services to our customers through

three businesses, supported by a corporate centre.

Wealth and Personal Banking

Wealth and Personal Banking (WPB) offers a comprehensive set of

banking products and services to help support our customers to

manage their day-to-day finances and help to manage, protect and

grow their wealth. We serve over 14 million active customers under

our three brands: HSBC UK (including our Private Bank), first direct

and M&S Bank.

Commercial Banking

Commercial Banking (CMB) is a full-service international commercial

bank, that is highly connected to the HSBC Group. We serve over

700,000 active clients, delivering the Group’s comprehensive product

suite to meet their international and domestic needs.

On 13 March 2023, HSBC UK acquired Silicon Valley Bank UK Limited

(SVB UK), later renamed to HSBC Innovation Bank Limited (HINV).

HSBC Innovation Banking was subsequently launched by the HSBC

Group as a global proposition, which includes HINV. HINV’s results

are presented within CMB.

Global Banking and Markets

Within HSBC UK, we offer foreign currency payments, transaction

banking and selected products to enable commercial hedging, as

permitted under UK ring-fencing legislation. Through close

collaboration with HSBC Group, we also make available products

required by our clients that are not available within HSBC UK (on an

arms-length basis).

Corporate Centre

Corporate Centre supports central operations of the HSBC UK

business lines and comprises Markets Treasury, interests in a joint

venture and stewardship costs.

The Annual Report and Accounts for the year ended 31 December

2023 outlines our business and financial performance aligned to our

key strategic pillars.

Our strategy

Our UK strategy comprises the following four pillars:

Focus

We seek to use our strengths as a major UK bank to play a vital role

in the future of the UK economy, supporting our customers and the

communities in which we operate, both domestically and

internationally.

Digitise

We aim to use technology to deliver fast, easy and secure banking.

Energise

We seek to inspire an inclusive and customer-focused culture where

employees can learn, develop and grow.

Transition

HSBC Group has an ambition to align its financed emissions to net

zero by 2050, and to become net zero in its operations and supply

chain by 2030.

Our strategy, setting out further details of our four strategic pillars,

can be found on pages 5 to 6.

Stakeholder engagement

Building strong relationships with our stakeholders helps us to deliver

our strategy in line with our long-term values. Our stakeholders are

the people who work for us, bank with us, own us, regulate us, and

live in the societies we serve and the planet we all inhabit. Many of

our employees are customers and shareholders of the Group, while

our business customers are often suppliers. We aim to create value

for our customers and shareholders by doing business responsibly,

and thinking for the long term. Our section 172 statement, detailing

our Directors’ responsibility to stakeholders, can be found on pages 7

to 8.

Financial performance

We delivered reported profit before tax of £6,679m, £3,041m or 84%

higher than 2022, including £1,307m for the provisional gain on the

acquisition of SVB UK. Revenue increased by £2,855m, or 36%, to

£10,807m, including the provisional gain on the acquisition of SVB UK

and £1,584m from higher net interest income. Net interest margin

widened, from 1.89% in 2022 to 2.43% in 2023. Our 2023 reported

RoTE of 28.4% (22.4% excluding the provisional gain on acquisition

of SVB UK) was 12.1% higher than the 2022 reported RoTE of

16.3%. Supported by a CET1 ratio of 14.0% and LCR of 201% as at

31 December 2023, our balance sheet remains resilient, with ample

capital and liquidity.

Our loans and advances increased by 4% (1% excluding acquired

HINV balances) with a stable market share. Customer deposits

decreased by 5% in 2023 (6% excluding HINV), and the mix of

deposits shifted towards interest-bearing accounts, primarily due to

the impact of cost of living pressures on our customers, corporate

deleveraging in the market, and the competitive environment against

the backdrop of higher interest rates.

ECL decreased by £61m from £482m in 2022 to £421m in 2023

driven by lower provisions for forward looking economic uncertainty,

more than offsetting higher charges in CMB for a limited number of

specific exposures.

Operating expenses decreased by £125m, or 3%, in 2023 as we

continued to actively manage our cost base. The impacts of ongoing

investment in technology, wage inflation and new costs from HINV

were more than offset by lower restructuring costs following the

completion of our cost-saving transformation programme at the end

of 2022 and the increased IAS 19 accounting benefit arising from our

defined benefit pension surplus as discount rates rose in line with the

prevailing interest rate environment.

Our Financial summary, containing further details of our financial

performance, can be found on page 9.

Risk overview

We use an established risk management framework underpinned by

a strong culture to enable effective risk governance and an

understanding of the risks that apply to HSBC UK. All our people are

responsible for the management of risk, with the ultimate

accountability residing with the Board. Full details of our top and

emerging risks are included on page 17.

Strategic report


2	HSBC UK Bank plc Annual Report and Accounts 2023

Financial highlights

For the year ended 31 December 2023

Profit before tax

£6.7bn

(2022: £3.6bn)

Expected credit losses and other credit impairment charges/

(releases)

£421m

(2022: £482m)

Loans and advances to customers

£211.9bn

(2022: £204.1bn)

Risk-weighted assets

£101.5bn

(2022: £92.4bn)

Revenue

£10.8bn

(2022: £8.0bn)

Operating Expenses

£3.7bn

(2022: £3.8bn)

Customer accounts

£268.3bn

(2022: £281.1bn)

Common equity tier 1 capital ratio

14.0%

(2022: 13.5%)


	of which: HSBC Innovation Bank Limited (Profit before tax and Revenue includes the provisional gain on acquisition of SVB UK of £1.3bn)


HSBC UK Bank plc Annual Report and Accounts 2023	3

Key financial metrics


	Year ended
	31 Dec 2023	31 Dec 2022
Reported results
Revenue (£m)1	10,807	7,952
Profit before tax (£m)2	6,679	3,638
Profit after tax (£m)	5,254	2,876
Profit attributable to the shareholders of the parent company (£m)	5,249	2,871
Net interest margin (%)	2.43	1.89
Cost efficiency ratio (%)2	34.3	48.2
Alternative performance measures
Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers (annualised) (%)	0.20	0.24
Return on average ordinary shareholder's equity6 (%)	22.8	13.0
Return on average tangible equity2,6,7 (%)	28.4	16.3

	At
	31 Dec 2023	31 Dec 2022
Balance sheet
Total assets (£m)	332,876	342,441
Net loans and advances to customers (£m)	211,887	204,143
Customer accounts (£m)	268,345	281,095
Average interest-earning assets (£m)	320,354	327,840
Loans and advances to customers as % of customer accounts (%)	79.0	72.6
Total shareholders' equity (£m)	26,010	22,166
Tangible ordinary shareholders equity (£m)	19,463	15,699
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)2,3	14.0	13.5
Total capital ratio (%)3	19.5	19.3
Risk-weighted assets3 (£m)	101,478	92,413
Leverage ratio3 (%)	6.1	5.9
High-quality liquid assets (liquidity value) (£m)4	94,765	110,722
Liquidity coverage ratio (%)5	201	226

1Revenue also refers to net operating income before change in expected credit losses and other credit impairment charges.

2These metrics are tracked as Key Performance Indicators of the group.

3Unless stated otherwise, figures have been prepared on an IFRS 9 transitional basis. Capital figures and ratios are reported on a CRR II transitional

basis for capital instruments and the leverage ratio is calculated using the CRR II end point basis for capital.

4Regulatory 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 in subsequent periods.

5The LCR is based on the average month-end value over the preceding 12 months.

6 Excluding the provisional gain on acquisition of SVB UK the reported RoTE was 22.4%.

7In the event that the current IAS 19 Pension fund surplus was zero, RoTE would be 32.4%(25.5% excluding the provisional gain on acquisition of

SVB UK) (2022: 17.7%), we refer to this as Pension Adjusted RoTE. Further details are on page 126.

Business performance and KPIs

Management track the bank’s progress in implementing its strategy with a range of financial and non-financial measures or KPIs. Progress is

assessed by comparison with the group's strategic priorities, operating plan targets and historical performance. KPIs are reviewed regularly and

Management may adopt new or refined measures to better align with HSBC UK’s strategic priorities.

A range of non-financial KPIs are also monitored focusing on customers, people, culture and values including customer service satisfaction,

employee engagement and diversity and sustainability. For further details on customer service and satisfaction, please refer to page 5; for

employee engagement, diversity and inclusion refer to page 6; for sustainability refer to page 6 and for other non-financial KPIs refer to the

Corporate Governance section on pages 62 to 66.

Strategic report


4	HSBC UK Bank plc Annual Report and Accounts 2023

Our purpose and values

Our purpose

Opening up a world of opportunity.

Our values

– We value difference: seeking out different perspectives.

– We succeed together: collaborating across boundaries.

– We take responsibility: holding ourselves accountable and taking

the long-term view.

– We get it done: moving at pace and making things happen.

Our core strengths

Full banking capability

We serve customers ranging from personal customers through to

multi-national corporates with the support of our three businesses.

Our full banking capability assists us in seeking to (i) meet our

customers’ diverse financial needs, (ii) reduce our risk profile and

volatility and (iii) generate returns for shareholders.

Value of our network

Within the UK we provide products and services digitally, by phone

and through face-to-face channels.

Access to HSBC Group's global

network and business synergies

For customers with international interests, we are intrinsically

connected with the HSBC Group’s wider global network, enabling our

customers to access international growth opportunities. This helps us

build deeper and more enduring relationships with businesses and

individuals. HSBC Group’s geographic reach and network of

customers also allows greater insight into the trade and capital flows

across supply chains. We share resources and product capabilities

across our businesses and leverage these synergies when serving

our customers.

Our strategy

Our UK strategy comprises the following four pillars:

Focus

Supporting our customers

We have continued to support our customers to improve their

financial resilience and capability, delivering Financial Wellbeing

events to over 50,000 attendees, including cost-of-living webinars.

HSBC UK is a founding partner of the new Experian Support Hub, a

‘tell us once’ portal for customers to inform multiple businesses of

the support they need to access their services. We continue to

support our customers in vulnerable circumstances, through tailored

support in our branches and our specialist account opening schemes.

These include: (i) NHS Trusts; (ii) those with no fixed address and (iii)

survivors of human trafficking and modern slavery. A £15bn SME

fund was made available in 2023, with £12bn drawn down as at

31 December 2023, to support our business customers to navigate

inflation and supply chain pressures.

We seek to prioritise our customers' needs to help support the

delivery of good customer outcomes, reinforcing our commitment to

Consumer Duty.

Growing our business

In 2023, we received external recognition, including Best Private

Bank in the UK at the Global Private Banking Awards, Best Bank for

Corporates in the UK and Best Bank for SMEs in the UK at the

Euromoney Awards for Excellence and the Financial Times ‘Bank of

the Year’.

In WPB, we continued to develop our international proposition,

launching international credit decisioning, that allows customers to

apply for a bank account using their credit history from 12 countries;

and launching Global Money, that enables customers to spend and

send money abroad across 65 countries without incurring HSBC fees.

We have opened over 725,000 new HSBC UK current accounts and

over 327,000 in first direct. We have increased our mortgage market

share to 8.0%1 (FY22: 7.7%) as at 31 December 2023 and have

provided £23bn of gross mortgage lending, seeing our mortgage

book surpass £129bn. Our credit card market share increased to

9.3%2 (FY22: 8.5%) and we advanced over £3bn in new personal

loans to customers. We have also grown assets under management

to over £47bn in Retail Wealth and our Private Bank (FY22: £45bn).

In CMB, our Large Corporate sector was ranked 1st for Market

Penetration in the 2023 Greenwich UK Large Corporate Banking and

Middle Market Banking Study and we have grown our inbound and

outbound revenue year on year by 67% and 48% respectively. We

have also increased our GTRF international export receivables finance

market share from 56.2% to 67.4%3. We maintained commercial net

lending market share in 20234 (excluding HINV) and grew the client

base of Global Wallet, our multi-currency virtual wallet, by over 67%.

We continue to integrate HINV into our systems and processes. It is

a core part of the Global HSBC Innovation Banking proposition,

together with newly assembled teams in the US, Israel, Hong Kong

and the Nordics. This international proposition aims to deliver globally

connected specialised banking services and expertise to innovation

businesses and their investors.

1 Bank of England - Gross Lending, Net Lending & Stock, DEC23.

2 UK Finance Data to December 2023, excluding John Lewis Financial

Services balances.

3 UK Finance Data to the third quarter 2023.

4 Bank of England - Total Loans and Advances less GTRF and Covid

Lending.

Digitise

Improving customer service

Customer satisfaction, measured in part through NPS, is a key priority

and guides our focus on investment and service improvements.

Our strategic NPS benchmarking survey, which runs twice a year,

saw HSBC UK WPB ranked joint 13th, with our ranking decreasing

vs. FY22. first direct continues to be ranked among the top retail

providers, ranking 2nd vs. joint 1st in FY22. In CMB, our Large

Corporate sector was ranked 2nd in the 2023 Greenwich UK Large

Corporate Banking Study. As measured by the Savanta MarketVue

Business Banking Survey, we have seen an increase in our overall

FY23 CMB NPS score to -14 vs. -19 in FY22. Our Mid-Market

Enterprises segment is ranked in 4th position, with a score of +9 vs.

+12 in FY22, while our Business Banking Portfolio Managed segment

has increased to 7th position. These survey results are clearly

disappointing, and reinforce that there is more work to be done to

meet customer expectations consistently.

While we have proactively chosen to reduce our branch estate, with

108 closures in 2023 and a remaining 6 to complete in 2024, our

physical presence in the community remains important. Over 2,000

Community Pop Up events took place across the country and we

have made improvements to 97 of our branches. We have made a

commitment that we will not announce any new branch closure

programmes in 2024. We continue to support Cash Access UK

Limited, of which HSBC UK was a founding member, which has set

up Banking Hubs across the country.


HSBC UK Bank plc Annual Report and Accounts 2023	5

Improving digital capabilities

We continue to invest to simplify and modernise our technology to

improve the availability, reliability and security of our services. While

we are making progress, we acknowledge and deeply regret the

notable customer service disruption in 2023 to our online banking

platform. We are actively addressing and increasing our investment

in operational resilience in 2024.

In WPB, we launched an online switcher journey for our buy-to-let

mortgage customers and launched investment 'Pots and Goals' into

our mobile banking app, enabling customers to identify, invest and

track progress of their long-term financial goals.

In CMB, we improved our online and mobile channels, allowing all our

clients' trade finance needs to be managed in one location and we

automated new client acquisition in HINV.

Energise

Supporting our colleagues

In 1Q23, over 24,000 colleagues attended our Future Fit For

Customer events, emphasising our commitment to support the

financial health of our customers now and in the future. Our

employee engagement, measured annually through our internal

Snapshot survey, has been relatively stable at 65% (vs. FY22: 66%)

and in September 2023, we provided colleagues with clear

expectations on hybrid working.

In 2023, we improved our UK benefits proposition, including providing

access to Bupa health checks for all UK employees. In partnership

with the Bank Workers Charity, the HSBC Support Fund provides

short-term financial support to current and former employees who

find themselves in financial hardship.

Speak-up culture

Empowering a speak up culture where our employees feel able to

raise issues remains critical. Multiple channels are available to our

employees, including our confidential whistleblowing helpline and our

Human Resources Direct platform. Our HSBC Confidential

whistleblowing helpline enables employees to raise concerns in

confidence and anonymously if they wish, without fear of retaliation

and reprisal. Concerns are investigated thoroughly and independently

and HSBC UK does not condone or tolerate any acts of retaliation

against those involved in internal investigations.

Inclusion

We increased representation of female leaders to 39.6% as at

31 December 2023 (vs. FY22: 37.9%) and increased leaders with

Black heritage to 3% (FY22: 2.6%). We have also created bespoke

roles in our UK and Global Head Offices for colleagues with complex

disabilities.

We were named a Leader by the UK Government Disability Confident

Scheme and were recognised as a Top 10 Employer by Investing in

Ethnicity. We have been Money and Mental Health Accredited and

our ranking in the Stonewall Top 100 LGBTQ+ Employers list

increased from 32nd to 12th position.

Supporting UK communities

In 2023, HSBC UK donated £7.2m to charities and non-profit

organisations running programmes and projects in the UK.

Additionally, our employees fundraised over £1m (with an equal

amount donated by our HSBC UK Pound for Pound scheme). Our

employee-led projects supported over 20,000 vulnerable people

across 54 local charities and 3,887 employees took paid volunteering

leave to support their local communities.

Additionally, HSBC UK acted as joint active bookrunner on Places for

People Group’s £500m public bond issuance in support of the

Housing Association Sector. We also acted as Joint Dealer Manager

on their simultaneous liabilities management exercise.

Societal partnerships

Shelter

In April 2023, HSBC UK and the housing and homelessness charity

Shelter announced a new multi-year £6.5m partnership. This will

enable Shelter to help over a million people at risk of losing their

home and build financial resilience in local communities to help

prevent homelessness.

Youth Financial Capability

During 2023, HSBC UK supported over 645,000 children and young

people to learn about money through our Education Volunteer

Network, which deliver financial capability lessons in schools and

community settings, our philanthropic partnerships with the Money

Heroes programme from Young Money, and the Money Skills Activity

Badge for Cubs and Beavers with the Scouts.

Transition

In January 2024, HSBC Group published its first net zero transition

plan, to provide an overview of the actions being taken and planned

to embed the Group's net zero ambition across HSBC. It sets out

how the Group intends to harness its strengths and capabilities in the

areas where it believes it can support large-scale emissions

reduction: transitioning industry, catalysing the new economy, and

decarbonising trade and supply chains. The plan will help 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 towards our own transition and

what we plan to do in the future.

For further details please refer to the ‘ESG Overview’ section in the

HSBC Holdings plc ARA 2023.

Supporting our customers

HSBC Group continues to track progress against its ambition to

provide and facilitate $750bn to $1tn of sustainable finance and

investment by 2030.

In HSBC UK, we launched our sustainability tracker in CMB, enabling

clients to understand how sustainable their business is, get tailored

suggestions and track progress. We also launched a Sustainable

Finance Ambassadors Influencers network to help our colleagues

understand the opportunities and risks faced by our clients. To further

improve client understanding, we also published a series of sector

focused reports with Economist Impact.

We have also collaborated with external partners to pilot new

solutions for our customers, including: (i) energy management

software; (ii) installation of energy infrastructure and (iii) a carbon

calculator/energy efficiency assessment tool. In 2023, HSBC UK

provided and facilitated more than £4.5bn of sustainable finance,

including green loans, sustainability-linked loans and sustainable

bonds. This is aligned to the HSBC Group Sustainable Finance and

Investment Data Dictionary 2023.

In WPB, we have launched new Environment, Social and Governance

metrics that our Private Banking clients with insight into their

sustainability holdings, alongside guidance on ESG and sustainable

investing.

Partnering for systemic change

Since 2021, the National Trust, with support from HSBC UK, have

planted over 598,000 trees across England, Wales and Northern

Ireland. Working together with the National Trust for Scotland, we

supported the restoration of 60.4 hectares of wetland and woodland

at the pioneering Threave Landscape Restoration Project.

Our partnerships with Imperial College London and the University of

Birmingham enabled us to support over 126 climate innovation

ventures since 2021. These ventures are developing services or

technologies with potential to make a positive impact on climate

change and the environment.

Strategic report


6	HSBC UK Bank plc Annual Report and Accounts 2023

Stakeholder engagement

This section forms our section 172 statement and addresses the

requirements of the Companies (Miscellaneous Reporting)

Regulations 2018. The first part, 'Engaging with our key

stakeholders', sets out information about the stakeholders we view

as critical to the bank and its prospects, including how the Board

considered them in its discussions and decision-making throughout

the year. The second part, 'Board engagement and governance',

provides two examples of principal discussions and decisions taken

by the Board in 2023 when discharging their responsibility. These

show how the Directors and Board respectively discharged their

individual and collective responsibility for promoting the long-term

success of the bank and took different stakeholder considerations

into account in reaching a decision or forming a view. More detailed

information on the activities of the Board during 2023 are set out in

the Corporate Governance Report on page 62.

Engaging with our key stakeholders

Directors attended a broad range of events during the year to help

them understand what really mattered to customers and employees

and to validate that the bank’s current strategy continued to support

them in the particularly challenging environment.

Through our Board Engagement Plan we continue to provide

opportunities for Directors to hear directly from employees,

customers and clients.

Customers

Customer needs are central to the bank's business and must be

understood so that we can appropriately support them. How we have

served and supported our customers during 2023 is covered in the

'Our strategy' section on page 5 in the Strategic report. Examples of

how the Board has engaged with customers during 2023 include:

– The Directors hosted a dinner for customers and clients from the

Private Banking, Business Banking and Innovation Banking

businesses. This allowed them to hear customer sentiment and

feedback first-hand.

– The Board visited the bank’s Global Service Centres in India to

better understand how colleagues based overseas support the

bank and service our customers. Further details are provided

under the heading ‘Board activities during 2023’ in the Corporate

Governance Report on page 64.

– CEO reports provided key customer-related metrics and

performance indicators, such as customer survey feedback and

net promoter scores. This allowed the Board to monitor the bank's

approach to supporting customers and oversee the impact of

associated activities. Other reports to the Board covered issues

such as complaints, supporting vulnerable customers, and

improving customer experience and journeys to meet the FCA’s

Consumer Duty obligations. This enabled the Board to assess

whether more was required to achieve HSBC UK’s ambition to be

a truly customer-centric organisation.

– Undertaking a deep dive into contact centre service performance

given the vital role they play in delivering our service proposition

through voice and chat support. The deep dive helped the Board

to understand the tactical interventions introduced to improve

customer service and strengthen our foundations for growth.

Employees

The Board recognise that our employees help us fulfil our potential,

execute our strategy and serve our customers better. The ways in

which we engage with employees, as well as our focus on improving

diversity and inclusion in HSBC UK, is detailed on page 5. Examples

of how the Board has engaged with employees include:

– Some Directors hosted events with colleagues from across the

bank to hear their perspectives of what it is like to work for HSBC

UK, whether they felt HSBC UK was making a difference for its

customers and what more can be done to improve their own

experiences in the workplace.

– Some Directors attended the Future Fit For Customers events to

which all of our employees were invited. These events were

focused on working together to identify what needs to change in

our service performance and to adapt to the future expectations

and needs of our customers.

– Directors interacted with the bank’s top talent to deepen their

familiarity with those employees in the talent pool. They hosted

events with small groups of employees from the talent pool to

help foster a culture of excellence and continuous improvement.

– CEO reports provided updates on employee related activities and

events, metrics on employee attrition, gender diversity, personal

conduct cases and the results of the internal employee survey.

These allowed the Board to understand employee sentiment,

health and well-being throughout 2023. In addition, when the

Board considered management's update on its People Strategy, it

was able to challenge whether the areas of focus and prioritisation

remain appropriate in the rapidly changing external environment.

Shareholder and investors

As a wholly owned, ring-fenced subsidiary of HSBC Holdings plc with

debt securities listed on the London Stock Exchange, the Board

recognises the importance of balancing its responsibilities to the

bank’s shareholder and investors, with its obligations under the ring-

Fencing regime. Examples of how the Board did this include:

– Engaging with HSBC Holdings plc board members in Birmingham

in May to showcase the business and its people.

– The Board Chairman and Committee Chairs engaged with their

Group counterparts and attended Group forums and Board

Committee meetings, together with Executive Directors, to

discuss common issues and strategic priorities.

– Evaluating the strength of the bank's balance sheet to ensure that

the ability to pay principal or interest on its listed debt securities

was not at risk.

Suppliers

Suppliers provide critical support to help the business operate

effectively. Examples of Board engagement during 2023 include:

– The Chief Operating Officer’s regular reports on third-party

supplier matters such as the operating model, relationship

management, material outsourcing, performance and operational

resilience.

– A visit to HSBC’s Global Service Centres in India, with a focus on

customer outcomes and colleague experience. This allowed

Directors to see how HSBC UK’s management team was

supporting a key supplier to improve its services for customers by

building knowledge, increasing connectivity and communication

and addressing points of friction in key processes and procedures.

Further detail on third party risk management is included in the Risk

Section in the Report of Directors on page 22.

Communities

HSBC UK plays an important role in supporting the communities in

which it operates and is dependent on those communities for the

majority of our workforce. We have established a number of

community partnerships which are detailed in the ‘Supporting our

Community’ section on page 8. During the year, the Board

encouraged management to increase the impact of HSBC UK's

societal purpose to improve the financial health of the UK. This

included:

– Expanding the partnership with the homelessness charity Shelter.

Directors met with Shelter to understand how the bank could help

support people and communities during the cost of living crisis.


HSBC UK Bank plc Annual Report and Accounts 2023	7

– Understanding from the business how the bank is evolving from a

traditional branch network to over 3,200 innovative fixed and

flexible community-centric formats to reach customers across our

communities.

– Reviewing the HSBC UK Net Zero Execution Plan.

Regulators and Government

As a UK bank, the government and regulators in the UK are key

stakeholders with whom we maintain constructive dialogue and

relations. Examples of the Board’s engagement with them during

2023 include:

– Meetings between Directors and regulators, both as part of

continuous assessment and on specific issues such as the PRA's

summary review, the bank's progress to implement the FCA's

Consumer Duty and the SVB UK acquisition and subsequent

integration.

– Participation by Directors in government and regulatory

consultations, industry forums and round table events with

particular focus on supporting mortgage customers in the current

challenging environment and formalising the bank's commitment

to savings customers.

– The FCA attended the Board meeting in October to present the

2023 Firm Evaluation Letter, which allowed the Board to hear first-

hand about the FCA's assessment of the bank.

Board engagement and governance

Set out below are two of the principal decisions made by the Board

during the year. In taking these decisions, the Directors had regard to

their statutory duties under section 172(1) (a)-(f) of the Companies

Act 2006:

Embedding Hybrid Working

Since the bank set out its hybrid working strategy in 2022, it has

continued to be embedded in the business within agreed parameters

and commitments set by senior management. It was anticipated that

if activated and embedded successfully, hybrid working would have a

positive impact on our key customer service performance indicators.

Although there have been improvements in telephony service

performance and Net Promoter Score ranking for Commercial

Banking, the indicators were not at the level expected and a more

direct and proactive approach to hybrid working was required.

When deliberating the options available, the Board was mindful of the

different interests of key stakeholder groups, in particular:

– Striking a balance between enhancing customer journeys and

outcomes whilst providing employees with the flexibility offered

by hybrid working;

– The benefits for our customers in the long term and the potential

impact on employee engagement and retention in the short-term;

– The importance of in-person collaboration and proximity between

teams to foster success; and

– The bank’s role in supporting local businesses and the

communities in which it operates.

Based on the information provided and taking into account the

interests of relevant stakeholders, the Board decided that to activate

hybrid working consistently across the organisation, setting out a

strong, clear expectation that the correct approach for customers and

employees was for employees to spend 60% of their time in an

office or with clients.

Acquisition of Silicon Valley Bank UK

Limited

Following the failure of Silicon Valley Bank (SVB US) on 10 March

2023, the Bank of England exercised its stabilisation powers under

the Banking Act 2009 in respect of SVB US’ UK subsidiary, SVB UK.

In arriving at a decision to buy SVB UK (informed by due diligence

activity performed by HSBC UK and HSBC Holdings plc), the Board

took into account the views of key stakeholders, including UK

regulators and the government. SVB UK subsequently changed its

name to HSBC Innovation Bank Limited. The Board also considered

the following:

– SVB UK’s strategic fit with the bank and the Group’s ambition to

grow and scale its Commercial Banking franchise, particularly in

the innovation economy.

– The bank’s ability to service the SVB UK client base of innovative

and fast-growing firms in the UK and internationally. HSBC’s

global reach, backed by its strength, safety and security, which

would maintain and improve SVB UK clients' access to a range of

financial services, international banking and improved online and

transaction banking solutions throughout their customer journey.

– SVB UK’s operational and technological dependency on its former

parent company and the need to ensure continuity of service to

customers ahead of any migration of SVB UK clients onto the

bank’s system.

– Implications on ring-fencing requirements, including how to

provide the necessary financial resources and other support to

SVB UK, while being cognisant of the bank’s obligations to its

customers within the ring-fence.

– SVB UK’s financial position and loan book credit quality, including

the estimated fair value of net assets acquired versus the

purchase price for the business, together with the immediate

capital and liquidity required to support SVB UK.

The Board concluded that the acquisition was a key driver to

strengthen the Commercial Banking franchise and become the

leading financial partner in the innovation economy. Although mindful

of the potential risks and the management stretch that the acquisition

presented, the size, relative simplicity of the entity and risk profile of

SVB UK were meaningful mitigants. Accordingly, the Board approved

the SVB UK acquisition, a decision which was supported by the Board

of HSBC Holdings plc.

Strategic report


8	HSBC UK Bank plc Annual Report and Accounts 2023

Economic background and outlook

UK economic outlook

The UK ended 2023 in recession, with GDP having fallen 0.1%

quarter-on-quarter in the third quarter of 2023 and a further 0.3% in

the fourth quarter of 2023. This meant that the economy grew by just

0.1% in 2023 – the weakest rate of annual average growth since

2009 (excluding 2020).

However, against the backdrop of lower inflation and interest rate

expectations, HSBC Global Research forecasts an improvement from

here, with GDP growth of 0.6% in 2024, followed by 0.9% in 2025.

This stronger growth picture should be driven principally by

recovering real incomes and improving confidence.

The labour market has weakened, although there is some uncertainty

over the unemployment rate, pending the Office for National

Statistics’ review of its Labour Force Survey. Latest estimates

suggest unemployment stood at around 3.8% in December.

However, in the view of HSBC Global Research, the jobs market will

continue to soften, with the unemployment rate rising to 4.8% in

2024 and 5.3% in 2025. With the market still relatively tight, annual

pay growth remains somewhat elevated, but has started to slow.

Public sector pay settlements and the 9.8% rise in the National Living

Wage will add support, but HSBC Global Research expects total pay

growth of 4.2% in 2024, down from 7.2% in 2023.

UK CPI inflation fell from its high point of 11.1% year on year in

October 2022, to 3.9% year on year in November 2023. Since then it

has risen slightly, standing at 4.0% y-o-y in both December 2023 and

January 2024. Core CPI inflation stood at 5.1% in January 2024,

down from its May 2023 high of 7.1%.

With a further 16% fall in household energy prices expected in April

2024, HSBC Global Research now expects CPI and core CPI to fall

below 2% and 3% respectively by spring 2024, before rebounding

slightly in the second half of 2024. On an average annual basis, HSBC

Global Research expects CPI inflation of 2.2% in 2024 and then 2.3%

in 2025, well down on 9.1% in 2022 and 7.3% in 2023.

As a consequence of the rise in inflation, the BoE raised Bank Rate

from 0.10% to 5.25%, with the last increase taking place in August

2023. In the four meetings since August 2023, the BoE has kept

Bank Rate unchanged and in February 2024, it dropped its warning

that further tightening might still be necessary. In October, the BoE

announced plans to reduce the balance sheet through quantitative

tightening, by a further GBP100bn by September 2024.

HSBC Global Research forecasts that the BoE will cut Bank Rate by

25bps to 5.00% in August 2024, and then by 25bps per quarter,

taking it to 3.75% by end-2025. This is broadly in line with market

pricing.

Financial summary


Summary consolidated income statement for the year ended
	Year ended
	Audited
	31 Dec 2023	31 Dec 2022
	£m	£m
Net interest income	7,787	6,203
Net fee income	1,284	1,245
Net income from financial instruments held for trading or managed on a fair value basis	414	384
Gain on acquisition of subsidiary1	1,307	—
Other operating income	15	120
Net operating income before change in expected credit losses and other credit impairment charges	10,807	7,952
Change in expected credit losses and other credit impairment charges	(421)	(482)
Net operating income	10,386	7,470
Total operating expenses	(3,707)	(3,832)
Operating profit	6,679	3,638
Profit before tax	6,679	3,638
Tax expense	(1,425)	(762)
Profit for the year	5,254	2,876
Profit attributable to shareholders of the parent company	5,249	2,871
Profit attributable to non-controlling interests	5	5

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

Reported performance

The 2023 reported profit before tax of £6,679m was £3,041m, or

84%, higher than 2022, including £1,307m for the provisional gain on

the acquisition of SVB UK.

Revenue increased by £2,855m, or 36%, including £1,307m for the

provisional gain on acquisition of SVB UK, the addition of new

operating revenues from HSBC Innovation Bank Limited, and wider

net interest margins due to higher benchmark interest rates.

Net interest income increased by £1,584m, or 26%, due to wider

net interest margins following successive interest rate increases. This

was partly offset by the impacts of competitive mortgage and deposit

pricing, lower total deposit balances and an increase in the mix

towards interest-bearing deposit accounts. These were driven by the

cost of living pressures on our customers, corporate deleveraging in

the market under prevailing conditions, and the competitive

environment.

Net fee income increased by £39m, or 3%, driven by the addition of

fee income from HSBC Innovation Bank Limited.

Net income from financial instruments held for trading or

managed on a fair value basis increased by £30m, or 8%,

principally due to foreign exchange income and impact of the

changes in short term interest rates.

Other operating income decreased by £105m, mainly due to

disposal losses from repositioning and risk management activities in

our hold-to-collect-and-sell portfolio.


HSBC UK Bank plc Annual Report and Accounts 2023	9

ECL decreased by £61m from £482m in 2022 to £421m in 2023

driven by lower provisions for forward looking economic uncertainty,

more than offsetting higher charges in CMB for a limited number of

specific exposures and the addition of new ECL from HSBC

Innovation Bank Limited.

Total operating expenses decreased by £125m, or 3%, due to

lower restructuring costs following the completion of our cost saving

transformation programme at the end of 2022 and the increased IAS

19 accounting benefit arising from our defined benefit pension

surplus as discount rates rose in line with the prevailing interest rate

environment, partly offset by ongoing investment in technology cost,

wage inflation and new costs from HSBC Innovation Bank Limited,

including the cost of completing its integration.

Tax expense effective rate is 21.1% (2022: 20.9%). The effective tax

rate for 2023 is lower than the statutory tax rate mainly due to the

non-taxable provisional gain arising on the acquisition of SVB UK in

the period reducing the ETR by 5.4%. The effective tax rate for 2022

of 20.9% was reduced by 4.8% by the remeasurement of deferred

tax balances following substantive enactment of legislation to reduce

the banking surcharge from 8% to 3%. On 1 April 2023 the main rate

of UK corporation tax increased from 19% to 25%, giving a blended

rate of 23.5%, and the rate of UK banking surcharge decreased from

8% to 3%, giving a blended rate of 4.25%. The combined blended

tax rate for 2023 is 27.75% (2022: 27%).


Net interest income
	Year ended
	At
	31 Dec 2023	31 Dec 2022
	£m	£m
Interest income	12,915	7,592
Interest expense	(5,128)	(1,389)
Net interest income	7,787	6,203
Average interest-earning assets (AIEA)	320,354	327,840
	%	%
Gross interest yield1	4.03	2.32
Less: Gross interest payable1	(2.06)	(0.55)
Net interest spread2	1.97	1.77
Net interest margin3	2.43	1.89

1Gross interest yield is the interest income as a percentage of AIEA.

Gross interest payable is the interest expense as a percentage of

average interest-bearing liabilities.

2Net interest spread is the difference between the gross interest yield

and the gross interest payable.

3Net interest margin is net interest income as a percentage of AIEA.

Net interest margin increased from 1.89% in 2022 to 2.43% in 2023.

This was driven by the interest rate increases in 2023, with increased

yields on cash at central banks and customer lending, partly offset by

an increase in interest expense on customer accounts.

Return on average tangible equity

RoTE is measured as the profit attributable to ordinary shareholders

divided by the reported equity adjusted for goodwill and intangibles. A

reconciliation is provided on page 126, which details the adjustments

made to the reported results and equity in calculating RoTE. Our 2023

reported RoTE was 28.4% which was 12.1% higher than the 2022

RoTE of 16.3%, driven by higher reported profit before tax.

Alternative performance measures

To measure our performance, we supplement our IFRS Accounting

Standards figures with non-IFRS Accounting Standards measures,

which constitute alternative performance measures. All alternative

performance measures are reconciled to the closest reported

performance measure.

Changes to our reporting framework

On 1 January 2023, we updated our financial reporting frame work.

We no longer report ‘adjusted’ results, which exclude the impact of

significant items.

Segmental reporting

Global businesses are our reportable segments under IFRS 8.

The HSBC Group Chief Executive, supported by the rest of the Group

Executive Committee, is considered the CODM for the purposes of

identifying the HSBC Group's, and therefore HSBC UK's, reportable

segments. HSBC UK's CODM is the HSBC UK Chief Executive,

supported by the HSBC UK Executive Committee.

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 which 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. The intra-group elimination items are presented

in the Corporate Centre.

A description of the global businesses is provided in the Strategic

report, page 2.


Reported profit before tax and balance sheet data for the year ended
At 31 Dec 2023	WPB	CMB	GBM	Corporate Centre	Total
At 31 Dec 2023	£m	£m	£m	£m	£m
Net operating income/(expense) before change in expected credit losses and other credit impairment charges	4,620	6,109	154	(76)	10,807
– external	3,784	6,250	396	377	10,807
– inter-segment	836	(141)	(242)	(453)	—
– of which: net interest income	3,996	3,883	(2)	(90)	7,787
– of which: provisional gain on the acquisition of SVB UK	—	1,307	—	—	1,307
Change in expected credit losses and other credit impairment charges	(18)	(403)	—	—	(421)
Net operating income/(expense)	4,602	5,706	154	(76)	10,386
Total operating income/(expenses)	(2,383)	(1,434)	(38)	148	(3,707)
Operating profit	2,219	4,272	116	72	6,679
Profit before tax	2,219	4,272	116	72	6,679
	%	%	%	%	%
Cost efficiency ratio	51.6	23.5	24.7	194.7	34.3
Balance sheet information	£m	£m	£m	£m	£m
Loans and advances to customers (net)	143,588	68,651	—	(352)	211,887
Customer accounts	170,684	98,093	—	(432)	268,345

Strategic report


10	HSBC UK Bank plc Annual Report and Accounts 2023


Reported profit before tax and balance sheet data for the year ended (continued)
	WPB	CMB	GBM	Corporate Centre	Total
At 31 Dec 2022	£m	£m	£m	£m	£m
Net operating income/(expense) before change in expected credit losses and other credit impairment charges	4,331	3,507	151	(37)	7,952
– external	4,156	3,306	394	96	7,952
– inter-segment	175	201	(243)	(133)	—
– of which: net interest income	3,664	2,531	(1)	9	6,203
Change in expected credit losses and other credit impairment charges	(287)	(195)	—	—	(482)
Net operating income/(expense)	4,044	3,312	151	(37)	7,470
Total operating expenses	(2,309)	(1,170)	(34)	(319)	(3,832)
Operating profit/(loss)	1,735	2,142	117	(356)	3,638
Profit/(loss) before tax	1,735	2,142	117	(356)	3,638
	%	%	%	%	%
Cost efficiency ratio	53.3	33.4	22.5	(862.2)	48.2
Balance sheet information	£m	£m	£m	£m	£m
Loans and advances to customers (net)	138,927	65,408	—	(192)	204,143
Customer accounts	181,785	99,622	—	(312)	281,095

Wealth and Personal Banking

Profit before tax of £2,219m in 2023 was £484m, or 28%, higher than

2022, driven by higher revenue and lower ECL, partly offset by higher

operating expenses.

Revenue increased by £289m, or 7%, primarily due to wider margins

following successive interest rate increases. This was partly offset by

the impact of loan margin compression particularly in mortgage

lending, lower total deposit balances and an increase in the mix

towards interest-bearing deposit accounts, resulting from the cost of

living pressures on our customers and the competitive environment.

ECL decreased by £269m, or 94%, to £18m charge in 2023,

reflecting resilience in our unsecured lending portfolio and a strong

employment market, and benefited from lower provisions for forward

looking economic uncertainty.

Operating expenses increased by £74m, or 3%, due to increased

technology investment, partly offset by actions taken to continuously

optimise operational costs.

Commercial Banking

Profit before tax was £4,272m, £2,130m or 99% higher than 2022,

due to the provisional gain on the acquisition of SVB UK of £1,307m

and higher revenue, partly offset by higher ECL and higher operating

expenses.

Revenue increased by £2,602m, or 74%, including £1,307m for the

provisional gain on the acquisition of SVB UK. The remaining increase

was due to the post-acquisition operating revenues of HSBC

Innovation Bank Limited and wider margins following successive

interest rate increases. These were partly offset by the impact of

lower total deposit balances and an increase in the mix towards

interest-bearing deposit accounts resulting from the inflationary

pressures, corporate deleveraging in the market under prevailing

conditions, and the competitive environment. Excluding HSBC

Innovation Bank Limited, revenue increased by £871m or 25%.

ECL increased by £208m from a £195m charge in 2022 to a £403m

charge in 2023 reflecting higher charges in CMB for a limited number

of specific exposures and the addition of new ECL from HSBC

Innovation Bank Limited.

Operating expenses increased by £264m, or 23%, driven by

increased technology investment costs and post-acquisition HSBC

Innovation Bank Limited costs, including the cost of completing its

integration. Excluding HSBC Innovation Bank Limited and associated

consolidation and integration, costs increased by £69m, or 6%.

Global Banking and Markets

GBM in HSBC UK reflects the transacting of foreign currency

exchange for WPB and CMB customers.

The majority of the foreign exchange revenue is transferred to WPB

and CMB, with an element retained in GBM.

Profit before tax of £116m was £1m, or 1%, lower than 2022.

Corporate Centre

Profit before tax of £72m in 2023 was £428m higher than the loss

before tax of £356m in 2022. This was driven by lower restructuring

costs following the completion of our cost saving transformation

programme in 2022 and the increased IAS 19 accounting benefit

arising from our defined benefit pension surplus as discount rates

rose in line with the prevailing interest rate environment.

Dividends

The consolidated reported profit for the year attributable to the

shareholders of the bank was £5,249m.

Total interim dividends of £2,197m, were paid on the ordinary share

capital during the year, of which £539m relates to the previous year

and £1,658m relates to the current year. £214m of dividends were

paid in respect of our additional tier 1 capital instruments.

On 09 February 2024, the Directors resolved to pay an interim

dividend of £1,412m to the ordinary shareholder in respect of the

financial year ending 31 December 2023.

Further information regarding dividends is given in Note 6.


HSBC UK Bank plc Annual Report and Accounts 2023	11


Summary consolidated balance sheet as at
	31 Dec	31 Dec
	2023	2022
	£m	£m
Total assets	332,876	342,441
– cash and balances at central banks	65,719	94,407
– financial assets mandatory measured at fair value through profit and loss	135	108
– derivatives	178	546
– loans and advances to banks	7,980	6,357
– loans and advances to customers	211,887	204,143
– reverse repurchase agreements – non-trading	7,686	7,406
– financial investments	26,315	16,092
– other assets	12,976	13,382
Total liabilities	306,806	320,215
– deposits by banks	10,843	10,721
– customer accounts	268,345	281,095
– repurchase agreements – non-trading	4,652	9,333
– derivatives	108	304
– debt securities in issue	1,988	1,299
– other liabilities	20,870	17,463
Total equity	26,070	22,226
– total shareholders’ equity1	26,010	22,166
– non-controlling interests	60	60

1Total shareholders' equity includes share capital, share premium, additional Tier 1 instruments and reserves.

The group maintained a strong and liquid balance sheet. The ratio of

customer advances to customer accounts increased to 79%

compared to 73% at 31 December 2022.

Impact of Climate Risk

We have assessed the impact of climate risk on our balance sheet

and have concluded that there is no material impact on the financial

statements for the year ended 31 December 2023. We considered

the impact on a number of areas of our balance sheet including

expected credit losses, classification and measurement of financial

instruments, goodwill and other intangible assets, our owned

properties, our pension plan, as well as our going concern.

For further detail on how climate risk may impact HSBC UK in the

medium to long-term see page 59 and on credit risk see page 25.

Additionally, for further disclosure on how management has

considered the impact of climate-related risks on its financial position

and performance see critical estimates and judgements, detailed in

Note 1 ‘Basis of preparation and significant accounting policies’ from

page 85.

Assets

Cash and balances at central banks decreased by £28.7bn due to

continued growth in customer lending and lower customer deposits.

Loans and advances to customers increased by £7.7bn, mainly driven

by growth in mortgage lending by £4.1bn and the addition of new

lending of £6.2bn from HSBC Innovation Bank Limited, partly offset

by repayments of government supported Covid-19 lending.

Liabilities

Customer accounts decreased by £12.7bn, across both retail

(£11.1bn) and commercial (£1.5bn) in line with the overall market

liquidity reduction driven by heightened cost of living pressures on

our customers, corporate deleveraging, and the competitive

environment. The £1.5bn net decrease in commercial deposits

included the benefit of an increase in deposits of £4.7bn from the

acquisition of HSBC Innovation Bank Limited.

Equity

Total shareholders’ equity, including non-controlling interests,

increased by £3.8bn or 17% compared with 31 December 2022.

This reflected the effects of profits generated of £5.3bn and increase

in Other comprehensive income of £1bn from cashflow hedge

reserves as a result of the impact of increasing interest rates, partially

offset by dividend payments of £2.4bn.

Risk overview

Our customers and our organisation have continued to be impacted

by challenging economic conditions in the UK throughout 2023.

Economic growth prospects are fringed with uncertainty, with the UK

entering into a recession in the second half of 2023. As energy prices

have stabilised, the level of inflation has fallen. However, although

mortgage rates have started to reduce, consumers continue to

experience pressures as the BoE maintains high interest rates in its

efforts to bring inflation down to its target rate. We continue to

monitor the effect of this policy on our mortgage customers facing

increased monthly repayments from either a refinanced higher fixed

rate or from higher variable rates, and on our customers who are

facing increased rental costs. Our mortgage portfolio remains resilient

but we are seeing some increase in the level of stress, albeit from a

low base. Our primary concern is to ensure that we support our

customers through offering appropriate solutions, including those

adopted through the government’s Mortgage Charter, released in

June 2023. The economic outlook is detailed in the 'Description of

consensus economic scenarios' from page 33.

We have continued the process of integrating HSBC Innovation Bank

Limited (previously Silicon Valley Bank UK) into the group since its

purchase in March 2023 which has included the roll-out of HSBC UK

risk tools, systems and practices. This process will enable HINV to

operate effectively, while facilitating the alignment of the

management of risks related to both the integration and the ongoing

operation of the organisation, in a manner consistent with our risk

and compliance frameworks and policies.

Our balance sheet and liquidity has remained strong which helped us

to support our customers. Pressure on business operations and

customer support has continued to be high as our people, processes

and systems have responded to meet the current economic

challenges. Our operational resilience remains a strategic priority.

We are conscious that in 2023 there have been some significant

interruptions to customer service on our online platforms, including

on Black Friday, with other notable failures of customer support

systems and processes seen across the year. We are taking action

through an independent review to determine how we can improve

Strategic report


12	HSBC UK Bank plc Annual Report and Accounts 2023

our operational resilience. This review is described in more detail in

'Resilience Risk' on page 60.

We continue to monitor, and seek to manage, the potential

implications of all the above developments on our customers and our

business and have maintained our focus on improving the quality and

timeliness of the data we use to inform management decisions and

for regulatory reporting. We have employed an active but prudent

approach in managing our risk appetite, and have ensured regular

communication with our Board and key stakeholders.

Risk environment

We continuously identify, assess, manage and monitor risks. This

process, which is informed by our risk factors and the results of the

stress testing programme, gives rise to the classification of certain

financial and non-financial banking risks. Changes in the assessment

of these risks may result in adjustments to our business strategy and,

potentially, our risk appetite.

Our material banking risks include credit risk, treasury risk, market

risk, climate risk, resilience risk, regulatory compliance risk, financial

crime and fraud risk and model risk. See pages 24 to 62.

In addition to these banking risks, we have identified top and

emerging risks with the potential to have a material impact on our

financial results or reputation and the sustainability of our long-term

business model. See pages 17 to 22.

The exposure to our risks and risk management of these are

explained in more detail in the Risk section of the Report of the

Directors on pages 15 to 67.

Our suite of top and emerging risks is subject to regular review by

senior governance forums. During 2023, we removed Ibor transition

as a top risk given the cessation of the publication of US dollar Libor

in June 2023. We continue to monitor closely the identified risks and

ensure management actions are in place, as required.


Risk		Description
Externally driven
Geopolitical and macroeconomic risk	p	Our operations and portfolios are subject to risks associated with political instability, civil unrest and military conflict. This could lead to disruption of our operations, physical risk to our staff and/or physical damage to our assets. Geopolitical tensions remain high. The impacts from elevated inflation, high interest rates and geopolitical events, such as the ongoing Russia-Ukraine and Israel-Hamas wars, may affect our customers and our business.
Credit risk	u	We remain focused on assessing and managing the impacts of the cost-of-living crisis and high interest rates on our customers, with our early warning indicators helping us to identify segments that we believe may be at risk due to the macroeconomic situation. This includes our mortgage customers who may be impacted by increased monthly payments and across our lending portfolio, those with reduced affordability due to other cost of living increases. We are ensuring that we have adequate capacity within our Financial Support Team and are contacting customers potentially at risk. We remain focused on managing credit facilities appropriately, and adjusting policy and strategy as needed, including regular refreshes of our affordability models. Industry sector analysis is regularly conducted with particular focus on the Commercial Real Estate (Offices), Construction and Contracting, Hospitality, Hotels, and Retail industry sectors, as well as parts of Agriculture and Manufacturing. We have continued to undertake in-depth monitoring activities with stress tests and other reviews performed to identify portfolios or customers who are likely to experience financial difficulty.
Evolving regulatory environment risk	p	The regulatory risk environment is increasingly complex. There remains ongoing focus by regulators to improve outcomes for banks’ consumers, particularly vulnerable ones, as well as the orderly and transparent operation of financial markets. These, alongside other regulatory priorities, are resulting in change requirements across HSBC UK in the short to medium term. We continue to monitor regulatory and wider industry developments closely, engaging with regulators as appropriate.
Financial crime and fraud risk	u	We are exposed to financial crime risk from our customers, staff and third-parties engaging in criminal activity. The financial crime risk environment continues to evolve, due to increasingly complex geopolitical challenges, the macroeconomy, evolving sanctions regulations, technological developments and national data privacy requirements. Fraud, which is becoming ever-more sophisticated, continues to be an area of focus for HSBC UK. Regulatory scrutiny has increased around scams and the impacts from recent changes to the PSR’s reimbursement requirements. As a result, we will continue to face the possibility of regulatory enforcement and reputational risk.
Cyber threat and unauthorised access to systems	u	HSBC UK faces a risk of service disruption or loss of data resulting from technology failures or malicious activities by internal or external threats. We continue to monitor ongoing geopolitical events and changes to the threat landscape. HSBC UK operates a continuous improvement programme to help protect our technology operations and to counter a fast- evolving cyber threat environment.
Environmental, social and governance risk	p	We are subject to ESG risks including in relation to climate change, nature and human rights. This risk continues to increase owing to the pace and volume of regulatory developments and stakeholders placing more emphasis on financial institutions’ actions and investment decisions in respect of ESG matters. Failure to meet these evolving expectations may result in financial and non-financial risks for HSBC UK, including reputational, legal and regulatory compliance risks.
Digital currencies and disintermediation risk	u	Focus remains on digital currencies from governments, regulatory bodies and central banks. There has been increased debate on CBDC with the BoE and HMT consultation on the subject in the UK and more design studies and pilots taking place in locations such as Hong Kong, India, the eurozone and Japan. The cryptocurrency and stablecoin ecosystem has seen exceedingly volatile prices with some risk of contagion spreading beyond these markets. There is still no suggestion that cryptocurrencies or stablecoins have moved from being a speculative asset to being a replacement for existing fiat currencies. We continue to monitor the evolution of digital assets and decentralised finance across channels including consultations, pilots and issuances to assess the implications for our products and services and our customers.
Internally driven
People risk	q	HSBC UK is exposed to risks associated with employee retention, talent availability and compliance with employment laws and regulations. Whilst overall HSBC UK attrition has continued to ease, we remain vigilant in light of external market factors including the cost of living crisis and an active labour market, that might impact our ability to retain and attract talent. HSBC UK is embedding hybrid working, with further opportunities to continuously enhance our employee proposition.


HSBC UK Bank plc Annual Report and Accounts 2023	13


Risk		Description

Internally driven (continued)
IT systems infrastructure and service resilience	u	Whilst our IT estate is complex, strengthening operational resilience remains a strategic imperative. Modernising and simplifying our technology architecture is key to strengthening the resiliency of our environment and remains a core focus, with investment planned in 2024 to modernise and uplift resiliency standards. We are committed to delivering better customer outcomes by reducing disruptions for our customers so they can access services when they need them. To achieve this, we are reducing reliance on non-strategic platforms so we reduce complexity for colleagues and customers and support swifter, safer change deployment. We are also increasing usage of cloud infrastructure so we can benefit from resiliency and support scalability when customer demands rise. An increasing usage of iterative releases with reduced lead time to deploy code will help support easier testing and delivery of new products and features to meet customer needs quicker.
Model risk	u	Model risk arises whenever business decision making includes reliance on models. We use models in both financial and non-financial contexts, as well as in a range of business applications. The model landscape continues to be impacted by regulatory requirements driving material changes to the way model risk is managed across the banking industry in the UK. The PRA’s Supervisory Statement (SS 1/23) 'Model Risk Management Principles for Banks' issued in May 2023 requires increased oversight and controls on the management of model risks. The rapidly changing technology environment including generative AI and large language models utilising AI are also impacting the need for enhanced model risk controls.
Conduct and customer detriment	u	The dedicated programme to embed our updated purpose-led conduct approach (PLCA) has concluded. Closely linked to our conduct agenda, the first phase of the Consumer Duty was delivered in July 2023 and is helping to ensure good outcomes for our customers across all retail products and services. Focus has now moved to the second phase of the Consumer Duty Programme which is due to be implemented by July 2024 and primarily concerns delivering good customer outcomes within our closed book of products.
Data risk	u	HSBC UK uses data to serve our customers and run our operations, often in real-time within digital experiences and processes. Data risk remains a key area of focus for HSBC UK and is receiving significant management attention as we continue to enhance our control environment. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet regulatory requirements could be impacted. We seek to ensure that non-public data is kept confidential, and that we comply with the growing number of regulations that govern data privacy and cross-border movement of data.
Third-party risk	p	HSBC UK procures goods and services from a range of third party providers. Due to the current economic and geopolitical climate, the risk of service disruption in our supply chain has heightened. Any deficiency in the management of risks associated with our third parties could affect our ability to support our customers and meet regulatory expectations. We continue to strengthen our controls, oversight and risk management policies and processes to select and manage third parties, including our third parties’ own supply chains, particularly for key activities that could affect our operational resilience.
Execution risk	u	Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability to achieve our strategic objectives. Given the increased scale, complexity and pace of change at HSBC UK, we continue to monitor, manage and oversee change execution risk to ensure our change portfolio and initiatives continue to deliver the right outcomes for our customers, people, investors and communities.


●	New risk introduced in 2023
p	Risk has heightened during 2023
u	Risk remains at the same level as 2022
q	Risk has decreased during 2023

The Strategic report comprising pages 2 to 14 was approved by the Board on 20 February 2024 and is signed on its behalf by:

John David Stuart

Director

HSBC UK Bank plc

Registered number: 9928412

Strategic report


14	HSBC UK Bank plc Annual Report and Accounts 2023

Risk review


15	How we manage our risks
16	Risk management
17	What are our principal risks and uncertainties
17	Top and emerging risks
17	Externally driven
21	Internally driven
22	Our material banking risks
24	Credit risk
52	Treasury risk
59	Market risk
59	Climate risk
60	Resilience risk
60	Regulatory compliance risk
61	Financial crime risk
62	Model risk

How we manage our risks

Our risk appetite

We recognise the importance of a strong culture, which refers to our

shared attitudes, values and standards that shape behaviours related

to risk awareness, risk taking and risk management. All our people

are responsible for the management of risk, with the ultimate

accountability residing with the Board.

We seek to build our business for the long term by balancing social,

environmental and economic considerations in the decisions we

make. Our strategic priorities are underpinned by our endeavours to

operate in a sustainable way. This helps us to carry out our social

responsibility and manage the risk profile of the business. We are

committed to managing and mitigating climate-related risks, both

physical and transition, and continue to incorporate consideration of

these into how we manage and oversee risks internally and with our

customers.

The following principles guide HSBC UK's overarching risk appetite

and determine how its businesses and risks are managed.

Financial position

– We aim to maintain a strong capital position, defined by regulatory

and internal capital ratios.

– We carry out liquidity and funding management for each operating

entity, on a stand-alone basis.

Operating model

– We seek to generate returns in line with a conservative risk

appetite and strong risk management capability.

– We aim to deliver sustainable earnings and consistent returns for

shareholders.

Business practice

– We have zero tolerance for any of our people knowingly engaging

in any business, activity or association where foreseeable

reputational risk or damage has not been considered and/or

mitigated.

– We have no appetite for deliberately or knowingly causing

detriment to consumers or incurring a breach of the letter or spirit

of regulatory requirements.

– We have no appetite for inappropriate market conduct by any

member of staff or by any HSBC UK business.

Enterprise-wide application

Our risk appetite encapsulates the consideration of financial and non-

financial risks. We define financial risk as the risk of a financial loss as

a result of business activities. We actively take these types of risks to

maximise shareholder value and profits.

Non-financial risk is defined as the risk to achieving our strategy or

objectives as a result of inadequate or failed internal processes,

people and systems, or from external events.

Our Risk Management Framework

An established risk governance framework and ownership structure

ensures oversight of, and accountability for, the effective

management of risk. Our Risk Management Framework fosters the

continuous monitoring of the risk environment and an integrated

evaluation of risks and their interactions. Integral to our Risk

Management Framework are risk appetite, stress testing and the

identification of emerging risks.

Our Risk Committee focuses on risk governance and provides a

forward-looking view of risks and their mitigation. The Risk

Committee is a committee of the Board and has responsibility for

oversight and advice to the Board on, amongst other things, the

bank’s risk appetite, tolerance and strategy, systems of risk

management, internal control and compliance. Additionally, members

of the Risk Committee attend meetings of the Chairman’s

Nominations and Remuneration Committee at which the alignment of

the reward structures to risk appetite is considered.

In carrying out its responsibilities, the Risk Committee is closely

supported by the Chief Risk Officer, the Chief Financial Officer, the

Head of Internal Audit and the Heads of Compliance, together with

other business functions on risks within their respective areas of

responsibility.

Responsibility for managing both financial and non-financial risk lies

with our people. They are required to manage the risks of the

business and operational activities for which they are responsible. We

maintain oversight of our risks through our various specialist Risk

Stewards, as well as the accountability held by the Chief Risk Officer.

Non-financial risk includes some of the most material risks HSBC UK

faces, such as cyber-attacks, poor customer outcomes, loss of data

and the current geopolitical risks. Actively managing non-financial

risks is crucial to serving our customers effectively and having a

positive impact on society. During 2023, we continued to strengthen

the control environment and our approach to the management of

non-financial risks, as broadly set out in our Risk Management

Framework. The management of non-financial risk focuses on

governance and risk appetite, providing a single view of the non-

financial risks that matter most, and associated controls. It

incorporates a risk management system designed to enable the

active management of non-financial risk. Our ongoing focus is on

simplifying our approach to non-financial risk management, while

driving more effective oversight and better end-to-end identification

and management of risks. This is overseen by our Enterprise Risk

Management function, headed by the HSBC UK Head of Enterprise

Risk Management.

Three lines of defence

All our people are responsible for identifying and managing risk within

the scope of their roles. Roles are defined using the three lines of

defence model, which takes into account our business and functional

structures.

To create a robust control environment to manage risks, we use an

activity-based three lines of defence model. This model delineates

management accountabilities and responsibilities for risk

management and the control environment.

The model underpins our approach to risk management by clarifying

responsibility and encouraging collaboration, as well as enabling

efficient coordination of risk and control activities. The three lines of

defence are summarised below:

– The first line of defence owns the risks and is responsible

for identifying, recording, reporting and managing them in line

with risk appetite, and ensuring that the right controls and

assessments are in place to mitigate them.

– The second line of defence challenges the first line of defence on

effective risk management, and provides advice and guidance in

relation to the risk.


HSBC UK Bank plc Annual Report and Accounts 2023	15

– The third line of defence is our Internal Audit function, which

provides independent assurance that our risk management

approach and processes are designed and operating effectively.

Risk appetite

We formally articulate our risk appetite through our Risk Appetite

Statement (‘RAS’), which is approved by the Board on the

recommendation of the Risk Committee. Setting out our risk appetite

ensures that planned business activities provide an appropriate

balance of return for the risk we are taking, and that we agree a

suitable level of risk for our strategy. In this way, risk appetite informs

our financial planning process and helps senior management to

allocate capital to business activities, services and products.

The RAS consists of qualitative statements and quantitative metrics,

covering financial and non-financial risks. It is fundamental to the

development of business line strategies, strategic and business

planning and senior management balanced scorecards. Performance

against the RAS is reported to the Risk Management Meeting so that

any actual performance that falls outside the approved risk appetite is

discussed and appropriate mitigating actions are determined. This

reporting allows risks to be promptly identified and mitigated, and

informs risk-adjusted remuneration to drive a strong risk culture.

Stress testing

Stress testing is an important tool for banks and regulators to assess

vulnerabilities in individual banks and/or the financial banking sector

under hypothetical adverse scenarios. The results of stress testing

are used to assess banks’ resilience and capital adequacy to a range

of adverse shocks.

A number of internal macroeconomic and event-driven stress

scenarios specific to the UK or the global economy were considered

and reported to senior management during the course of the year.

These stress scenarios included the impact of high inflation and

liquidity shocks. HSBC UK also conducted a Reverse Stress Test.

This exercise required HSBC UK to assess scenarios and

circumstances that would render its business model non-viable,

thereby identifying potential business vulnerabilities.

Furthermore, HSBC UK is subject to regulatory stress testing and the

requirements are increasing in granularity. The assessment by the

regulators is on both a quantitative and qualitative basis, the latter

focusing on our portfolio quality, data provision, stress testing

capability and capital planning processes.

In 2022 HSBC UK participated in the Annual Cyclical Scenario stress

test. The exercise subjected the major UK banks to hypothetical deep

simultaneous recessions in the UK and global economies, large falls

in asset prices and higher global interest rates, and a separate stress

of misconduct costs.

The BoE published the results of the 2022 Annual Cyclical Stress in

July 2023. Standalone results showed that HSBC UK is sufficiently

capitalised. The results indicate that HSBC UK would not fall below

its CET1 and Tier 1 leverage ratio hurdles.

There was no BoE Annual Cyclical Stress exercise in 2023. The 2023

internal stress tests confirm that HSBC UK is well positioned to

withstand potential shocks.

Risk management

We recognise that the primary role of risk management is to protect

our customers, business, employees, shareholders and the

communities that we serve, while ensuring we are able to support

our strategy and provide sustainable growth. This is supported

through our three lines of defence model.

We use a comprehensive Risk Management Framework across the

organisation and across all risk types, underpinned by the HSBC

Group’s culture and values. This outlines the key principles, policies

and practices that we employ in managing material risks, both

financial and non-financial.

The framework fosters continual monitoring, promotes risk

awareness and encourages sound operational and strategic decision

making. It also ensures a consistent approach to identifying,

assessing, managing and reporting the risks we accept and incur in

our activities.

Internal control

We have:

– Established policies to ensure compliance with the PRA Rulebook

for Ring-fenced bodies. These include an over-arching Ring-fenced

bodies policy, together with additional policies covering

Exceptions, Arm's Length Transactions and Distributions.

– Implemented the HSBC Group Risk Management Framework and

other HSBC Group policies and procedures. These are designed

to: safeguard assets against unauthorised use or disposal;

maintain proper accounting records; and ensure the reliability and

usefulness of financial information.

Policies and procedures are designed to provide effective internal

control within the group but can only provide reasonable assurance

against mitigating material misstatement, errors, losses or fraud.

The key risk management and internal control procedures, that have

been in place throughout the year ended 31 December 2023 and up

to the date of approval of this report, include:

– Global Principles: The HSBC Group's Global Principles set an

overarching standard for all other policies and procedures and are

fundamental to the Group’s risk management structure. They

inform and connect our purpose, values, strategy and risk

management principles, guiding us to do the right thing and treat

our customers and employees fairly at all times.

– The HSBC Group Risk Management Framework: see 'Our Risk

Management Framework' section of the report on page 15.

– Delegations of authority: Subject to certain matters reserved to

the Board, the Board has delegated powers and authority to

manage the day-to-day running of the Company within certain

limits to the CEO and its Executive Committee. The CEO is

permitted to sub-delegate such powers and authorities, within

those limits, as he sees fit.

– Strategic plans: The annual financial resource plan is informed by

detailed analysis of risk appetite, stress-testing exercises, and the

types and quantum of risk that the Company is prepared to take,

within the parameters set by the HSBC Group, to execute its

strategy. It also sets out the key business initiatives and the

financial impact of those initiatives in order to determine the most

appropriate use of the Company’s resources. This is approved by

the Company’s Board and progress against the Financial Resource

Plan is reported regularly to the Executive Committee, Board and

the HSBC Group Executive Committee.

The key risk management and internal control procedures over

financial reporting include the following:

– Financial reporting: The financial reporting process for preparing

the consolidated Annual Report and Accounts 2023 is controlled

using documented accounting policies and reporting formats,

supported by detailed instructions and guidance on reporting

requirements. These are issued by the HSBC Group to HSBC UK

and are cascaded to all reporting entities within the group in

advance of each reporting period end. The submission of the

Company's financial information is subject to certification by the

CFO, and analytical review procedures undertaken at reporting

entity and group levels.

– Disclosure Committee: The Disclosure Committee comprises

certain executive management and supports the discharge of the

Company’s obligations in relation to its debt securities traded on

the London Stock Exchange. In particular, it considers whether a

new event or circumstance constitutes inside information,

reviews all material disclosures and considers and advises upon

any requests and reports to be made by any subsidiaries or

affiliates of its group with regard to inside information.

– Audit Committee: The Board’s Audit Committee reviews the

internal financial controls and reporting disclosures for any

material errors, misstatements or omissions with regard to the

integrity of financial statements and disclosures and provides

oversight over internal financial controls. It is supported by

Report of the Directors | Risk


16	HSBC UK Bank plc Annual Report and Accounts 2023

structures and processes within the group’s Finance and Risk

functions that provide analytical review of financial reporting and

the maintenance of accounting records, and seek the committee’s

support regarding material accounting policies and practices

before they are agreed with the External Auditors.

– Risk Committee: The Board’s Risk Committee provides oversight

over internal controls systems and the status of principal risks,

and considers whether the mitigating actions put in place are

appropriate. In addition, when unexpected losses have arisen or

incidents have occurred which indicate gaps in the control

framework or in adherence to policies, the committee reviews

reports prepared by management that analyse the cause of the

issue, any lessons learned and actions proposed to address the

issue.

During the year, the Risk Committee and Audit Committee kept

under review the effectiveness of this system of internal controls and

reported regularly to the Board. In carrying out their respective

reviews, the committees receive regular reports from: business and

operational risk assessments; heads of key risk functions covering all

internal controls, both financial and non-financial; internal audit

reports; external audit reports; prudential reviews; and regulatory

reports. More details on the committee’s responsibilities and

activities during the year are set out in the 'Board Committees'

section on page 64.

What are our principal risks and

uncertainties

Key developments in 2023

We actively managed the risks related to macroeconomic and

geopolitical uncertainties, as well as other key risks described in this

section. In addition, we sought to enhance our risk management in

the following areas:

– We implemented two revised risk appetite frameworks to better

manage and strengthen our controls with respect to concentration

risks. These relate to concentration risks arising from exposures to

countries and to single customer groups.

– We enhanced our processes, framework and capabilities to seek

to improve the control and oversight of our material third parties,

and to help maintain our operational resilience and meet new and

evolving regulatory requirements.

– The integrity of our Regulatory Reporting remains a top priority for

us and we have a comprehensive regulatory reporting programme

in place, that seeks to strengthen our processes, improve

consistency and enhance controls across our regulatory reports.

Scrutiny from our UK regulators in this area continues to increase.

We are dedicating resource, investment and Board focus across

the period of the programme to help ensure that we deliver the

required improvements.

– Through our climate risk programme, we continued to embed

climate considerations throughout the organisation, including

continued development of risk metrics to manage our exposure to

climate risk, and the completion of an Internal Scenario Analysis

exercise to support risk management, business decision making,

and to meet ongoing regulatory expectations.

– We continue to strengthen our fraud controls and invest in

capabilities to fight financial crime through the application of

advanced analytics and artificial intelligence, while monitoring

technological developments and engaging with third-parties.

– We are embedding our suite of regulatory management systems

following the Group-wide roll-out of regulatory horizon scanning

capabilities and enhanced regulation mapping tooling.

– We continued to increase the stabilisation of our NII as interest

rate expectations fluctuated, driven by central bank rate increases

and a reassessment of the trajectory of inflation in major

economies.

Top and emerging risks

We use a top and emerging risks process to provide a forward-

looking view of issues with the potential to threaten the execution of

our strategy or operations over the medium to long term.

We proactively assess the internal and external risk environment, as

well as review the themes identified across HSBC UK businesses for

any risks that may require escalation. We update our top and

emerging risks as necessary.

Our current top and emerging risks are as follows.

Externally driven

Geopolitical and macroeconomic risk

Geopolitical and macroeconomic risk continued to be high in 2023 as

the UK economy faced a number of challenges. Inflation has fallen

across the year but still remains elevated and economic growth

remains elusive with the UK officially recorded as being in recession

following ONS publication of its 2023 fourth quarter GDP estimate.

Although energy prices have reduced, significant cost of living

challenges remain with the BoE maintaining interest rates at a high

level with many customers facing an increase in their mortgage

payments. Consumer confidence has improved across 2023 but

remains low.

Higher inflation and interest rates, alongside lower growth in the UK,

have had an impact on ECL. The pressure on real disposable income

of households and business costs may have impacted the ability of

our customers to repay debt.

Macroeconomic, financial and geopolitical risks have all impacted our

macroeconomic scenarios. Our Central scenario, which has the

highest probability weighting in our IFRS 9 ‘Financial Instruments’

calculations of ECL, assumes that GDP growth in the UK will remain

low in 2024 before moderate recovery in 2025. Our Central scenario

also anticipates that inflation is forecast to gradually decline back to

the BoE target during 2025. Similarly interest rates in the UK are also

expected to decline but remain materially higher than in recent years.

We also consider scenarios where commodity prices are materially

higher, inflation and interest rates rise and a global recession follows,

however we assign a lower probability of these occurring.

However, forecasts remain uncertain, and changing economic

conditions and the materialisation of key risks could reduce the

accuracy of the Central scenario forecast. In particular, forecasts in

recent years have been sensitive to commodity price changes,

changing supply chain conditions, monetary policy adjustments and

inflation expectations. Uncertainty remains with respect to the

relationship between the economic factors and historical loss

experience, which has required adjustments to modelled ECL in

cases where we determined that the model was unable to capture

the material underlying risks.

For further details of our Central and other scenarios, see

‘Measurement uncertainty and sensitivity analysis of ECL estimates’

on page 32.

A Memorandum of Understanding was signed on 27 June 2023,

setting out a framework for voluntary regulatory cooperation in

financial services between the UK and the EU, including through the

establishment of a Joint UK-EU Financial Regulatory Forum. This is

expected to provide a platform on which both parties will be able to

discuss financial services-related issues, including future equivalence

determinations.

Negotiations between the UK and the EU over the operation of the

Northern Ireland Protocol concluded in February 2023. In January

2024, an additional agreement titled, "Safeguarding the Union" was

signed. Together, these agreements provide a greater degree of

certainty over the regulatory arrangements governing the movement

of goods between Great Britain, Northern Ireland and the EU. In

February 2024, the Northern Ireland Executive was reinstated after a

power-sharing agreement was reached by key political parties.

Challenges remain in the UK-EU relationship following the UK's

withdrawal from the EU. Over the medium to long term, the UK’s

withdrawal from the EU may continue to adversely impact the terms


HSBC UK Bank plc Annual Report and Accounts 2023	17

of EU market access for our clients. This could increase the country’s

economic risk, which in turn could impact our profitability. We are

monitoring the situation closely, including the potential impacts on

our customers.

The Russia-Ukraine war has continued to elevate geopolitical

instability which could have continued ramifications for HSBC UK and

its customers. We continue to monitor and respond to financial

sanctions and trade restrictions that have been adopted in response.

These sanctions and trade restrictions are complex, novel and

evolving. In particular, the US, the UK and the EU, as well as other

countries, have imposed significant sanctions and trade restrictions

against Russia. Such sanctions and restrictions target certain Russian

government officials, politically exposed persons, business people,

Russian oil imports, energy products, financial institutions and other

major Russian companies and sanctions evasion networks. These

countries have also enacted more generally applicable investment,

export, and import bans and restrictions. In December 2023, the US

established a new secondary sanctions regime, providing itself broad

discretion to impose severe sanctions on non-US banks that are

knowingly or even unknowingly engaged in certain transactions or

services involving Russia’s military-industrial base. This creates

challenges associated with the detection or prevention of third-party

activities beyond HSBC’s control. The imposition of such sanctions

against any non-US HSBC entity could result in significant adverse

commercial, operational, and reputational consequences for HSBC,

including the restriction or termination of the non-US HSBC entity’s

ability to access the US financial system and the freezing of the

entity’s assets that are subject to US jurisdiction. In response to such

sanctions and trade restrictions, as well as asset flight, Russia has

implemented certain countermeasures, including the expropriation of

foreign assets.

The Israel-Hamas war is also increasing tensions in the Middle East,

leading to recent attacks on shipping in the Red Sea and resulting

counter-measures, which have begun to disrupt supply chains.

The escalation or a broadening of either the Russia-Ukraine, or Israel-

Hamas wars could aggravate supply chain disruptions and drive

inflation higher and may pose challenges for our customers and our

business. HSBC UK is monitoring the impacts of these wars.

The relationship between China and several countries, including the

UK and the US, remains complex. To date, the UK, the US, the EU

and other countries have imposed various sanctions and trade

restrictions on Chinese persons and companies. Although sanctions

and trade restrictions are difficult to predict, increases in diplomatic

tensions between China and the US and other countries including the

UK, could result in sanctions that could negatively impact HSBC UK

and its customers. There is a continued risk of additional sanctions

and trade restrictions being imposed by the US and other

governments in relation to human rights, technology, and other

issues with China, and this could create a more complex operating

environment for HSBC UK and its customers.

Further sanctions, counter-sanctions and trade restrictions may

adversely affect HSBC UK and its customers by creating regulatory,

reputational and market risks.

Mitigating actions

– We closely monitor geopolitical and economic developments and

undertake scenario analysis and stress testing where appropriate.

This helps us to take actions to manage our portfolios where

necessary, including seeking to ensure enhanced monitoring and

amending our risk appetite.

– We continue to monitor the UK's relationship with the EU, and

assess the potential impact on our people, operations and

portfolios.

– We continue to monitor our risk profile closely in the context of

the current geopolitical and macroeconomic situation, and given

the significant uncertainties, additional mitigating actions may be

required.

– We continue to seek to manage sanctions and trade restrictions

through the use of reasonably designed policies, procedures and

controls, which are subject to ongoing testing, auditing and

enhancements.

Credit risk

Credit Risk in the UK is stable despite the ongoing cost-of-living and

consumer spend pressures. Inflation fell more quickly than expected

in the second half of 2023 and economists now forecast BoE base

rate cuts in 2024. However, downside risks remain that may elevate

Credit Risk, including the possibility of prolonged subdued demand

and supply chain issues driven by geopolitical events.

Mitigating actions

– We have reviewed our customer affordability and credit scoring

models and made adjustments to reflect the increased rate of

inflation and current economic conditions. We have also

proactively contacted customers to advise of the support tools

that we offer to provide help with the increased cost of living.

– Mortgage stress rates have been refreshed to reflect the latest

interest rate expectations, and are regularly reviewed, helping us

to recognise rises as well as reductions in base rate expectations

to help ensure that our stress rate remains appropriate in light of

the latest outlooks.

– Reviews of key credit portfolios are undertaken regularly to help

ensure that individual customer or portfolio risks are understood

and our ability to manage the level of facilities offered through the

economic downturn are appropriate.

– We continue to monitor high risk wholesale industry sectors

closely via quarterly industry risk appetite reviews and in 2023 we

also undertook specific reviews of portfolios showing vulnerability

such as Commodity Traders, Leverage, Construction and Building

Materials, Automotives, Retail, ‘Consumer Spend’ and

Commercial Real Estate. Detailed performance monitoring is

reviewed on a monthly basis, which includes early warning

indicators and a view of concentration risks. Portfolio limits and

exposures have been re-assessed and reductions implemented

where appropriate.

– We stress test portfolios of particular concern to help identify

sensitivity to loss under a range of scenarios, with management

actions being taken to help rebalance exposures and manage risk

appetite where necessary.

Evolving regulatory environment risk

Financial service providers continue to face stringent regulatory and

supervisory requirements, particularly in the areas of capital and

liquidity management, conduct of business, financial crime, internal

control frameworks, the use of models, the integrity of financial

services delivery and financial and operational resilience. The

competitive landscape in which HSBC UK operates may be

significantly altered by future regulatory changes and government

intervention. Regulatory changes, including those resulting from the

UK's exit from the EU, may affect our activities.

We aim to keep abreast of the emerging regulatory compliance and

conduct risk agenda. Current focus areas include, but are not limited

to: ESG matters; ensuring good customer outcomes, including

addressing customer vulnerabilities due to cost of living pressures;

enhancements to regulatory reporting controls; and employee

compliance including the use of e-communication channels. We

monitor regulatory developments closely and engage with regulators,

as appropriate, to help ensure new regulatory requirements are

implemented effectively and in a timely way. The competitive

landscape in which we operate may be impacted by future regulatory

changes and UK government intervention.

Mitigating actions

– We continue to engage in the development of new and amended

regulations in the UK to help ensure that the implications have

been considered by regulators.

– We continue to work with the UK authorities and regulatory

bodies to discuss any impacts on customers and markets.

– We monitor regulatory developments to understand the evolving

regulatory landscape and seek to respond with changes in a timely

manner.

Report of the Directors | Risk


18	HSBC UK Bank plc Annual Report and Accounts 2023

Financial crime and fraud risk

Financial institutions remain under considerable regulatory scrutiny

regarding their ability to detect and prevent financial crime. In 2023,

these risks were exacerbated by rising geopolitical tensions and

ongoing macroeconomic factors. These challenging developments

require managing conflicting laws and approaches to legal and

regulatory regimes, and implementing increasingly complex and less

predictable sanctions and trade restrictions.

Amid high levels of inflation and increasing cost of living pressures,

we face increasing regulatory expectations with respect to managing

internal and external fraud and protecting vulnerable customers. In

addition, the accessibility and increasing sophistication of generative

Artificial Intelligence brings financial crime risks. While there is

potential for the technology to support financial crime detection,

there is also risk that criminals generative AI to perpetrate fraud,

particularly scams.

The digitisation of financial services continues to have an impact on

the payments ecosystem, with an increasing number of new market

entrants and payment mechanisms, not all of which are subject to

the same level of regulatory scrutiny or regulations as banks.

Developments around digital assets and currencies have continued at

pace, with an increasing regulatory and enforcement focus on the

financial crimes linked to these types of assets.

Expectations with respect to the intersection of ESG issues and

financial crime as our organisation, customers and suppliers transition

to net zero, continue to increase.

Mitigating actions

– We continue to seek to manage sanctions and trade restrictions

through the use of reasonably designed policies, procedures and

controls, which are subject to ongoing testing, auditing and

enhancements.

– We continue to strengthen our fraud controls and invest in

capabilities to fight financial crime through the application of

advanced analytics and AI, while monitoring technological

developments and engaging with third-parties.

– We are looking at the impact of a rapidly changing payments

ecosystem, as well as risks associated with direct and indirect

exposure to digital assets and currencies, in an effort to maintain

appropriate financial crime controls.

– We regularly review our existing policies and control framework

so that developments relating to ESG are considered and the risks

mitigated.

– We engage with regulators, policymakers and relevant

international bodies, seeking to address data privacy challenges

through international standards, guidance and legislation.

Cyber threat and unauthorised access to systems

Together with other organisations, we continue to operate in an

increasingly hostile cyber threat environment. These threats include

potential unauthorised access to customer accounts, attacks on our

systems or those of our third-party suppliers and require ongoing

investment in business and technical controls to defend against

them.

Mitigating actions

– We continue to evaluate threat levels for the most prevalent

cyber-attack types and their potential outcomes, to help protect

HSBC UK and our customers and ensure the safe expansion of

our business. We also continue to strengthen our controls to help

reduce the likelihood and impact of advanced malware, data

leakage, and exposure through third parties and security

vulnerabilities.

– We continue to seek to enhance our cybersecurity capabilities,

including threat detection, Cloud security, access control, data

analytics and third-party security reviews. An important part of our

defence strategy is ensuring that our colleagues are aware of

cybersecurity issues and know how to identify and report

incidents.

– We report and review cyber risk and control effectiveness at

executive and non-executive Board level. We also report this

management information across our businesses and functions to

help ensure appropriate visibility and governance of the risk and its

mitigating actions.

– We actively participate in and support industry body forums and

working groups to share knowledge of tactics employed by cyber-

crime groups and to collaborate in defending against, detecting

and preventing cyber-attacks on financial organisation.

Environmental, social and governance risk

We are subject to financial and non-financial risks associated with

ESG related matters. Our current areas of focus include the following:

climate risk, nature-related risks and human rights risks. These can

impact us both directly and indirectly through our business activities,

clients and supplier relationships.

Focus on climate-related risk continued to increase over 2023, owing

to the pace and volume of policy and regulatory changes on climate

risk management, stress testing and scenario analysis and

disclosures. If we fail to meet evolving regulatory expectations or

requirements on climate risk management, this could have regulatory

compliance and reputational impacts. Climate change can have an

impact across HSBC UK’s risk taxonomy through both transition risk,

arising from the move to a low-carbon economy, such as through

policy, regulatory and technological changes, and physical risk

impacts due to the increasing severity and/or frequency of severe

weather or other climatic events, such as rising sea levels and

flooding, and chronic shifts in weather patterns,which could affect

our ability to conduct our day-to-day operations.

Our assessment of climate risks covers three distinct time periods,

comprising: short term, which is up to 2025; medium term, which is

between 2026 and 2035; and long term, which is between 2036 and

2050.

We have used the HSBC Group’s materiality-based approach in

developing our climate risk capabilities across our businesses by

prioritising sectors, portfolios and counterparties with the highest

potential impacts.

We continue to make progress in enhancing our climate risk

capabilities and recognise it is a long-term iterative process and aim

to regularly review our approach to increase coverage, incorporate

maturing data, climate analytics capabilities, frameworks and tools

and respond to emerging industry best practice and climate risk

regulations.

Our most material medium to long term risks in regards to managing

climate risk relate to corporate and retail client financing within our

banking portfolio, but there are also significant responsibilities in

relation to our employee pension plans, and we continue to monitor

the impacts of climate risk, and further embed our approach across

our key risk areas and business lines.

We have refreshed our credit risk policy to further embed climate risk

considerations into our corporate credit decisions for new money

requests. We continued to deliver training to select colleagues in our

Risk function to raise awareness of how climate risk is likely to

impact certain high transition risk sectors and the associated credit

risk considerations. We continue to develop guidance for our other

higher transition risk sectors. To help with risk assessment, our

developing client transition and physical risk questionnaire is currently

live across 10 sectors to improve our understanding of the level of

transition risk and physical risk exposure.

We are also focused on embedding climate considerations into our

retail credit risk management processes and have implemented

metrics to support monitoring for properties with heightened climate-

related physical risk exposure.

Transition risk efforts have focused on assessing the potential risk to

our mortgage portfolio by using current and potential energy

efficiency ratings for individual properties,sourced from property EPC

data. We are working towards improving our EPC data coverage for

properties in our portfolio with a valid EPC certificate (dated within

the last 10 years).


HSBC UK Bank plc Annual Report and Accounts 2023	19

In addition to financial risks arising in our corporate and retail banking

portfolio, we face increased reputational, legal and regulatory risks as

we make progress towards the HSBC Group's net zero ambition,

with stakeholders likely to place a greater focus on our actions,

investment decisions and disclosures related to this ambition.

We may face the risk of greenwashing if we are perceived to mislead

stakeholders regarding our climate strategy, the climate impact of a

product or service, or regarding the commitments of our customers,

including within our marketing material and campaigns. In response

to this risk, we have published internal guidance to stakeholders

across our business to increase awareness across the first and

second lines of defence and our product governance framework has

been expanded to improve the management of greenwashing risk

throughout the whole product lifecycle.

Net Zero alignment risk may also arise, impacting HSBC UK, where

HSBC Group fails to meet its net zero commitments or to meet

external expectations related to net zero, because of inadequate

ambition and/or plans, poor execution, or inability to adapt to changes

in external environment.

While climate risk reporting, and in particular reporting on financed

emissions, has improved over time, we continue to focus on data

quality and consistency with the development of our risk appetite and

metrics.

Climate risk may also impact on model risk as the uncertain impacts

of climate change and data limitations present challenges to creating

reliable and accurate model outputs.

Methodologies we have used may develop over time in line with

market practice and regulations, as well as developments in climate

science. Any developments in data and methodologies could result in

revisions to reported data going forward, including on financed

emissions, meaning that reported figures may not be reconcilable or

comparable year-on-year.

There is increasing evidence that nature-related risks beyond climate

change, which can be represented more broadly by impact and

dependence on nature, can and will have significant economic

impact. These risks arise when the provision of natural services, such

as water availability, air quality and soil quality, is compromised by

overpopulation, urban development, natural habitat and ecosystem

loss, ecosystem degradation arising from economic activity and other

environmental stresses beyond climate change. They can show

themselves in various ways, including through macroeconomic,

market, credit, reputational, legal and regulatory risks, for both HSBC

UK and our customers.

Regulation and disclosure requirements in relation to human rights,

and to modern slavery in particular, are expected to increase.

Mitigating actions

– Our HSBC UK climate risk programme continues to support the

development of our climate risk management capabilities across

four key pillars: governance and risk appetite, risk management,

stress testing and scenario analysis, and disclosures. We continue

to enhance our approach to managing and mitigating the risk of

greenwashing.

– Our product design, management, marketing, and governance

processes have been adapted to help ensure that climate risk

factors are effectively and consistently considered, including the

risk of greenwashing.

– We have supported the HSBC Group in the development and

implementation of an enhanced transition engagement

questionnaire, which is used by Relationship Managers to collect

information through discussions with our clients in high transition

risk sectors, and support their transition away from high carbon

activities.

– HSBC UK implements HSBC Group’s sustainability risk policies as

part of its broader reputational risk framework. We focus our

policies on sensitive sectors which may have a high adverse

impact on people or on the environment and in which we have a

significant number of customers. HSBC UK has implemented

HSBC Groups’ revised Energy Policy, which was published in

December 2022, and covers the broader energy system including

upstream oil and gas, oil and gas power generation, coal,

hydrogen, renewables, hydropower, nuclear, biomass and energy

from waste. HSBC Group also updated a thermal coal phase-out

policy.

– In 2023, the HSBC Group refreshed its assessment of how

climate risk may impact HSBC taxonomy risk types, with the

assessment focusing on a 12-month time horizon. It also

considers additional short term (up to 2025), medium term (2026 -

2035) and long term (2036 - 2050) time horizons. The assessment

is refreshed annually, and results may change as our

understanding of climate risk and how it impacts HSBC evolves.

– The Trustee of our employee pension plan, the HSBC UK section

of the HSBC Bank (UK) Pension Scheme, manages climate risk in

line with its fiduciary duties and local regulatory requirements,

with global corporate policy encouraging consideration of ESG

risks when selecting investments. Further details of the plan’s

approach to ESG risk management are available on the HSBC

Bank (UK) Pension Scheme website,

www.futurefocus.staff.hsbc.co.uk, including information on the

Trustee’s commitment to net zero and the annual Taskforce on

Climate-Related Financial Disclosures statement.

– HSBC UK was a key participants in HSBC Group’s pilot exercise to

assess nature risk exposures which we are using to shape our

approach to enhancing our capabilities.

– In 2023, HSBC UK supported the HSBC Group in delivering

guidance and training on human rights covering fundamental

human rights concepts and international standards, HSBC Group

public commitments and foundational principles for responding to

human rights risks, and a case study library of salient risk

identification and mitigation processes. In HSBC UK, a Modern

Slavery and Human Trafficking Risk Management Framework,

including training for customer facing frontline staff, was

developed, and implemented.

For further details, please refer to the ESG review in the HSBC

Holdings plc Annual Report and Accounts 2023.

Digital currencies and disintermediation risk

Digital currencies have, over the past few years, been a growing part

of the financial landscape bringing with them increased competition

and financial risk. CBDC and cryptocurrencies are the focus of

disintermediation risk as such currencies could result in a more direct

linkage between currency providers and payment participants.

CBDCs could require end users to hold accounts directly with a

central bank on a ledger retained by them eliminating the use for

intermediaries, such as HSBC UK. However, the pilots and issued

CBDCs are coalescing around leveraging existing banking networks

and infrastructure to support any CBDC initiative.

Cryptocurrencies facilitate peer-to-peer transactions across borders

as a common means of exchange which could reduce the

requirement for foreign exchange services and payment

intermediaries. Over the past year the crypto ecosystem has seen

significant disruption with volatile prices, individual currencies failing

and contagion spreading to industry participants.

Cryptocurrencies to date have not been seen as a replacement to fiat

currencies rather they are currently seen as a speculative investment.

Mitigating actions

– We will monitor progress and industry developments in digital

assets and other aspects of decentralised finance to assess

potential risks and impacts on business models, markets and

customers.

– We will continue to take a holistic view of the potential impacts

across product and client segments, including important

considerations such as vulnerability and financial inclusion.

Report of the Directors | Risk


20	HSBC UK Bank plc Annual Report and Accounts 2023

Internally driven

People risk

Our success in delivering our strategic priorities whilst proactively

managing the regulatory and legislative environment depends on the

attraction, development, and retention of our leadership and high-

performing employees. A highly competitive UK employment market,

coupled with heightened inflationary pressures, will continue to test

our ability to attract and retain talent. We remain focussed on

supporting our employees during the cost of living crisis. As we

embed hybrid working in HSBC UK, we continue to concentrate on

building and maintaining a high-performance culture and employee

engagement in the new environment.

Mitigating actions

– We are supporting our people during this period of slow economic

growth with a range of financial well-being activities.

– We seek to promote a diverse and inclusive workforce and

provide support across a wide range of health and well-being

activities. We continue to build our speak-up culture through

active campaigns.

– We monitor hiring activities and levels of employee attrition, to

ensure effective hiring and forecasting to meet business

demands.

– We monitor people risks that could arise due to organisational

restructuring to help ensure that we sensitively manage

redundancies and support impacted employees. We encourage

our people leaders to focus on talent retention at all levels, with an

empathetic mindset and approach, while ensuring the whole

proposition of working at HSBC UK is well understood. Our Future

Skills curriculum provides skills that will help to enable employees

and HSBC UK to be successful in the future.

– We develop succession plans for key management roles, with

oversight from the HSBC UK Executive Committee.

– Political, legislative and regulatory challenges are closely

monitored to minimise any impact on our employment practices

or the attraction and retention of talent and key performers.

IT systems infrastructure and operational resilience

HSBC UK’s current architecture has grown over an extended period,

making it more complex and at times difficult to change. Work is

necessary to improve this position, to help ensure continued support

and service for our customers. HSBC UK has been making progress

for the last two years in modernising and simplifying system

infrastructure, not only improving operational resilience, but also

helping to make the bank more efficient to operate. In doing so,

delivery of new products and features aimed at meeting customer

needs is becoming easier and safer.

Mitigating actions

– We are implementing a multi-year IT strategy in HSBC UK that

defines the requirements to establish a simpler, modern, and

more resilient architecture and is overseen by the HSBC UK

Board. As with any strategic transformation programme we will

continually manage the risks associated with this implementation.

– We will through 2024 deliver change that includes uplifting

resiliency maturity across some of the HSBC UK’s most important

business services; improving our monitoring and alerting

processes; modernising our core banking capabilities; eliminating

non-strategic applications; continuing migration to cloud;

simplifying the data landscape, and enhancing our cyber controls.

Model risk

Model risk arises whenever business decision making includes

reliance on models. We use models in both financial and non-financial

contexts, as well as in a range of business applications such as

customer selection, product pricing, financial crime transaction

monitoring, creditworthiness evaluation and financial reporting.

Assessing model performance is a continuous undertaking. Models

can require redevelopment as market conditions change. Significant

increases in inflation and interest rates, which impact the cost of

living in the UK, may impact the reliability and accuracy of credit risk

models. Close monitoring takes place, with recalibration or

redevelopment of these models, if required.

We continued to prioritise the redevelopment of IRB models as part

of the IRB repair and Basel III programmes with a key focus on

enhancing the quality of data used as model inputs. A number of

these models have been submitted to the PRA for feedback and

approval is in progress.

Mitigating actions

– We have continued to embed the enhanced monitoring, review

and challenge of expected loss model performance through our

Model Risk Management function as part of a broader quarterly

process to determine loss levels. The Model Risk Management

team aims to provide effective review and challenge of any future

redevelopment of these models.

– Model Risk Management works closely with businesses to ensure

that models in development meet the risk management, pricing

and capital management needs. Global Internal Audit provides

assurance over the risk management framework for models.

– Additional oversight and challenge is performed by Model Risk

Management as the second line of defence. The team tests

whether controls implemented by model users comply with

model risk policy and if model risk standards are adequate.

– We further embedded our Risk Appetite measures focused on

forward looking model risk supported by upgrades to the Model

Inventory System to provide more granular measurement and

management of model risk for multiple applications of a single

model.

– We continue to strengthen model risk controls through the Risk

Control Assessment process; and the lines of business and

functions test these controls to better assess and understand

model risk.

Conduct and customer detriment

At HSBC UK our conduct approach guides us to aim to do the right

thing and to focus on the impact we have for our customers and the

financial markets in which we operate. Customer experience is at the

heart of how we operate, and we aim to act responsibly and with

integrity. As part of this we have carried out a number of activities

during 2023:

Mitigating actions

– We understood and serviced our customers' ongoing needs and

continued to champion a strong conduct and customer-focused

culture.

– We delivered the first phase of Consumer Duty in July 2023 which

is closely linked to our conduct agenda. This delivery is helping

ensure good outcomes for our customers across all retail products

and services. Focus has now moved to the second phase of the

Consumer Duty Programme which is due to be implemented by

July 2024 and primarily concerns confirming and maintaining good

customer outcomes within our closed book of products.

– We continued to focus on the conduct management of our

vulnerable customer base.

– We continued with the integration of climate risk into HSBC UK’s

wider risk management approach, recognising the importance of

strengthened controls and oversight for our related activities.

– We continued to embed conduct within our business line

processes and through our Non-Financial and Financial Risk

Steward activities.

– We continue to deliver training to reinforce the importance of

conduct for all colleagues and delivered bespoke and focussed

conduct training and guidance to all of our risk steward colleagues.

Data risk

We use multiple systems and growing quantities of data to support

our customers. Risk arises if data is incorrect, unavailable, misused,

or unprotected. Along with other banks and financial institutions, we


HSBC UK Bank plc Annual Report and Accounts 2023	21

need to meet the increasing external regulatory obligations and laws

that cover data risk, such as the UK General Data Protection

Regulation and the Basel Committee for Banking Supervision’s 239

guidelines.

Mitigating actions

– Through our global data management framework, we monitor the

quality, availability and security of data that supports our

customers and internal processes. We work towards resolving

any identified data issues in a timely manner.

– We have made improvements to our data policies, and we are

implementing an updated control framework to help enhance the

end-to-end management of data risk.

– We aim to protect customer data through our data privacy

framework, which establishes practices, design principles and

guidelines that enable us to demonstrate compliance with data

privacy laws and regulations.

– We continue to modernise our data and analytics infrastructure

through investments in Cloud technology, data visualisation,

machine learning and artificial intelligence.

– We educate our employees on data risk and data management.

We delivered regular mandatory training on how to protect and

manage data appropriately.

Third-party risk

We use third parties to provide a range of goods and services. Risks

arising from the use of third-party providers and their supply chain

may be harder to identify. It is critical that we ensure we have

appropriate risk management policies, processes and practices over

the selection, governance and oversight of third parties and their

supply chain, particularly for key activities that could affect our

operational resilience. Any deficiency in the management of risks

associated with our third parties could affect our ability to support our

customers and meet regulatory expectations.

Mitigating actions

– We have enhanced our control framework for the use of third-

party providers to help ensure that the risks associated with these

arrangements are understood and managed effectively by our

businesses and functions across HSBC UK.

– We continue to enhance the effective management of our intra-

group arrangements using the same control standards as we have

for external third-party arrangements.

– We continue to monitor the effectiveness of the controls operated

by our third party providers and request third party control reports

where required.

Execution risk

Continued investment in strategic change is required to support the

delivery of our strategic priorities and regulatory commitments. We

are increasing our funding in this area in 2024 as we continue to

focus on ensuring that change is executed safely and efficiently

across HSBC UK. This focus includes having the organisational

capacity to sustainably deliver change, and availability of the

resources required to meet HSBC’s stated commitments.

Mitigating actions

– Change execution risk is part of our risk taxonomy and control

library so that it is defined, assessed, managed, reported and

overseen in the same way as our other material risks.

– The HSBC UK Transformation Oversight Committee oversees and

monitors the prioritisation and management of execution risk for

all material initiatives in HSBC UK.

Our material banking risks

The material risk types associated with our banking operations are described in the following tables.


Description of risks – banking operations
Risks	Arising from	Measurement, monitoring and management of risk
Credit risk (see page 24)
The risk of financial loss if a customer or counterparty fails to meet an obligation under a contract.	Credit risk arises principally from direct lending, trade finance and leasing business, but also from certain other products such as guarantees and derivatives.	Credit risk is: – measured as the amount that could be lost if a customer or counterparty fails to make repayments; – monitored using various internal risk management measures and within limits approved by individuals within a framework of delegated authorities; and – managed through a robust risk control framework that outlines clear and consistent policies, principles and guidance for risk managers.
Treasury risk (see page 52)
The risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, including the risk of adverse impact on earnings or capital due to structural foreign exchange exposures and changes in market interest rates, and including the financial risks arising from historic and current provision of pensions and other post- employment benefits to staff and their dependants.	Treasury risk arises from changes to the respective resources and risk profiles driven by customer behaviour, management decisions or the external environment.	Treasury risk is: – measured through appetites set as target and ratios; – monitored and projected through appetites and using stress and scenario testing; and – managed through control resources in conjunction with risk profiles and cashflows.
Market risk (see page 59)
The risk that movements in market factors, including but not limited to interest rates, credit spreads and foreign exchange rates, will reduce our income or the value of our portfolios.	Exposure to market risk is separated into two portfolios: – trading portfolios; and – non-trading portfolios.	Market risk is: – measured using sensitivities, value at risk and stress testing, giving a detailed picture of potential gains and losses for a range of market movements and scenarios, as well as tail risks over specified time horizons; – monitored using VaR sensitivities, stress testing and other measures, including the sensitivity of net interest income and the sensitivity of structural foreign exchange; and – managed using risk limits approved by the Risk Management Meeting.

Report of the Directors | Risk


22	HSBC UK Bank plc Annual Report and Accounts 2023


Description of risks – banking operations (continued)
Risks	Arising from	Measurement, monitoring and management of risk

Climate risk (see page 59)
Climate risk relates to the financial and non-financial impacts that may arise as a result of climate change and the move to a net zero economy.	Climate risk can materialise through: – physical risk, which arises from the increased frequency and severity of weather events; – transition risk, which arises from the process of moving to a low- carbon economy; – the risk of greenwashing, which arises from the act of knowingly or unknowingly making inaccurate, unclear, misleading, or unsubstantiated claims regarding sustainability to stakeholders; and – net zero alignment risk may arise, impacting HSBC UK, where HSBC Group fails to meet its net zero commitments or to meet external expectations related to net zero, because of inadequate ambition and/or plans, poor execution, or inability to adapt to changes in external environment.	Climate risk is: – measured using risk appetite metrics and scenario testing; – monitored using risk appetite statements; and – managed through adherence to risk appetite thresholds and through specific policies, enhancements to processes and the development of risk management tools.
Resilience risk (see page 60)
Resilience risk is the risk that we are unable to provide critical services to our customers, affiliates, and counterparties as a result of sustained and significant operational disruption.	Resilience risk arises from failures or inadequacies in processes, people, systems or external events. These may be driven by rapid technological innovation, changing behaviours of our consumers, cyber threats and attacks, cross border dependencies, and third party relationships.	Resilience risk is: – measured through a range of metrics with defined maximum acceptable impact tolerances and against our agreed risk appetite; – monitored through oversight of enterprise processes, risks, controls and strategic change programmes; and – managed by continuous monitoring and thematic review.
Regulatory compliance risk (see page 60)
Regulatory compliance risk is the risk associated with breaching our duty to clients and other counterparties, inappropriate market conduct and breaching related financial services regulatory standards.	Regulatory compliance risk arises from the failure to observe the letter and spirit of relevant laws, codes, rules, regulations and standards of good practice. This could result in poor market or customer outcomes leading to fines, penalties and reputational damage to our business.	Regulatory compliance risk is: – measured by reference to risk appetite, identified metrics, incident assessments, regulatory feedback and the judgement and assessment of our regulatory compliance teams; – monitored against the first line of defence risk and control assessments, the results of the monitoring and control assurance activities of the second line of defence functions, and the results of internal and external audits and regulatory inspections; and – managed by establishing and communicating appropriate policies and procedures, training employees in them and monitoring activity to help ensure their observance. Proactive risk control and/or remediation work is undertaken where required.
Financial crime risk (see page 61)
Financial crime risk is the risk of knowingly or unknowingly helping parties to commit or to further potentially illegal activity through HSBC UK, including money laundering, fraud, bribery and corruption, tax evasion, sanctions breaches, and terrorist and proliferation financing.	Financial crime risk arises from day- to-day banking operations involving customers, third parties and employees.	Financial crime risk is: – measured by reference to risk appetite, identified metrics, incident assessments, regulatory feedback and the judgement of, and assessment by, our compliance teams; – monitored against the first line of defence risk and control assessments, the results of the monitoring and control assurance activities of the second line of defence functions, and the results of internal and external audits and regulatory inspections; and – managed by establishing and communicating appropriate policies and procedures, training employees in them and monitoring activity to help ensure their observance. Proactive risk control and/or remediation work is undertaken where required.
Model risk (see page 62)
Model risk is the potential for adverse consequences from business decisions informed by models, which can be exacerbated by errors in methodology, design or the way they are used.	Model risk arises in both financial and non-financial contexts whenever business decision making includes reliance on models.	Model risk is: – measured by reference to model performance tracking and the output of detailed technical reviews, with key metrics including model review statuses and findings; – monitored against model risk appetite statements, insight from the independent review function, feedback from internal and external audits, and regulatory reviews; and – managed by creating and communicating appropriate policies, procedures and guidance, training employees in their application, and supervising their adoption to ensure operational effectiveness.


HSBC UK Bank plc Annual Report and Accounts 2023	23

Credit risk

Overview

Credit risk is the risk of financial loss if a customer or counterparty

fails to meet a payment obligation under a contract. Credit risk arises

principally from direct lending, trade finance and leasing business, but

also from other products such as guarantees and credit derivatives.

Credit risk management

(Audited)

The principal objectives of our credit risk management are:

– to maintain across HSBC UK a strong culture of responsible lending

and a robust risk policy and control framework;

– to both partner and challenge the businesses in defining,

implementing, and continually re-evaluating our risk appetite under

actual and scenario conditions; and

– to ensure there is independent, expert scrutiny of credit risks, their

costs and their mitigation.

Within HSBC UK, the Credit Risk function is headed by the Chief Risk

Officer who reports to the Chief Executive Officer, with a functional

reporting line to the Group Chief Risk Officer.

Its responsibilities are:

– to formulate credit policy. Compliance, subject to approved

dispensations, is mandatory for all operating companies which

must develop local credit policies consistent with group policies

that closely reflect HSBC Group policy;

– to guide operating companies on the group’s appetite for credit

risk exposure to specified market sectors, activities and banking

products and controlling exposures to certain higher-risk sectors;

– to undertake an independent review and objective assessment of

risk. Credit risk assesses all credit facilities and exposures over

designated limits, prior to the facilities being committed to

customers or transactions being undertaken;

– to monitor the performance and management of portfolios across

the group;

– to control exposure to sovereign entities, banks and other financial

institutions, as well as debt securities which are not held solely for

the purpose of trading;

– to set policy on large credit exposures, ensuring that

concentrations of exposure by counterparty, sector or geography

do not become excessive in relation to the group’s capital base,

and remain within internal and regulatory limits;

– to maintain and develop the risk rating framework, systems and

models through appropriate governance; and

– to report on retail portfolio performance, high risk portfolios, risk

concentrations, large impaired accounts, impairment allowances

and stress testing results and recommendations to HSBC UK's

RMM, Risk Committee and Board; and to act on behalf of the

group as the primary interface, for credit-related issues, with the

BoE, the PRA, the FCA, rating agencies, analysts and counterparts

in major banks and non-bank financial institutions.

Concentration of credit risk exposure

(Audited)

Concentrations of credit risk arise when a number of counterparties

or exposures have comparable economic characteristics, or are

engaged in similar activities, or operate in the same geographical

areas/industry sectors, so that their collective ability to meet

contractual obligations is uniformly affected by changes in economic,

political or other conditions.

A number of controls and measures are used to minimise undue

concentration of exposure in the portfolios across industry, country

and customer groups. These include portfolio and counterparty limits,

approval and review controls, and stress testing.

Credit quality of financial instruments

(Audited)

Our risk rating system facilitates the internal ratings-based approach

under the Basel framework adopted by the group to support the

calculation of our minimum credit regulatory capital requirement.

The five credit quality classifications each encompass a range of

granular internal credit rating grades assigned to wholesale and retail

lending businesses, and the external ratings attributed by external

agencies to debt securities.

For debt securities and certain other financial instruments, external

ratings have been aligned to the five quality classifications based

upon the mapping of related CRR to external credit rating.

Wholesale lending

The CRR 10-grade scale summarises a more granular underlying 23-

grade scale of obligor PD. All corporate customers are rated using the

10- or 23-grade scale, depending on the degree of sophistication of

the Basel approach adopted for the exposure. Each CRR band is

associated with an external rating grade by reference to long-run

default rates for that grade, represented by the average of issuer-

weighted historical default rates. This mapping between internal and

external ratings is indicative and may vary over time.

Retail lending

Retail lending credit quality is based on a 12-month point-in-time

probability-weighted PD.


Credit quality classification
	Debt securities and other bills	Wholesale lending		Retail lending
	External credit rating	Internal credit rating	12-month Basel probability of default %	Internal credit rating	12-month probability- weighted PD %
Quality classification1,2
Strong	A- and above	CRR1 to CRR2	0.000–0.169	Band 1 and 2	0.000–0.500
Good	BBB+ to BBB-	CRR3	0.170–0.740	Band 3	0.501–1.500
Satisfactory	BB+ to B and unrated	CRR4 to CRR5	0.741–4.914	Band 4 and 5	1.501–20.000
Sub-standard	B- to C	CRR6 to CRR8	4.915–99.999	Band 6	20.001–99.999
Credit-impaired	Default	CRR9 to CRR10	100.000	Band 7	100.000

1 Customer risk rating.

212-month point-in-time probability-weighted probability of default.

Report of the Directors | Risk


24	HSBC UK Bank plc Annual Report and Accounts 2023

Quality classification definitions

– ‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default.

– ‘Good’ exposures demonstrate a good capacity to meet financial commitments, with low default risk.

– ‘Satisfactory’ exposures require closer monitoring and demonstrate an average to fair capacity to meet financial commitments, with moderate default

risk.

– ‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern.

– ‘Credit-impaired’ exposures have been assessed as described on Note 1.2(g) on the financial statements.

Forborne loans and advances

(Audited)

Forbearance measures consist of concessions towards an obligor

that is experiencing or about to experience difficulties in meeting its

financial commitments.

We continue to classify loans as forborne when we modify the

contractual payment terms due to having significant concerns about

the borrowers’ ability to meet contractual payments when they were

due. Our definition of forborne captures non-payment-related

concessions, such as covenant waivers.

For details of our policy on forbearance, see Note 1.2(g) on the

financial statements.

Credit quality of forborne loans

For wholesale lending, where payment related forbearance measures

result in a diminished financial obligation or if there are other

indicators of impairment, the loan will be classified as credit impaired

if it is not already so classified. All facilities with a customer, including

loans that have not been modified, are considered credit impaired

following the identification of a payment related forborne loan. For

retail lending, where a material concession has been granted, the

loan will be classified as credit impaired if it is not already so

classified. In isolation, non-payment forbearance measures may not

result in the loan being classified as credit impaired unless combined

with other indicators of credit impairment. These are classed as

performing forborne loans for both wholesale and retail lending.

Wholesale and retail lending forborne loans are classified as credit

impaired until there is sufficient evidence to demonstrate a significant

reduction in the risk of non-payment of future cash flows, observed

over a minimum one-year period, and there are no other indicators of

impairment. Any forborne loans not considered credit impaired will

remain forborne for a minimum of two years from the date that credit

impairment no longer applies. For wholesale and retail lending, any

forbearance measures granted on loan already classed as forborne

results in customer being classed as credit impaired.

Forborne loans and recognition of expected credit losses

(Audited)

Forborne loans expected credit loss assessments reflect the higher

rates of losses typically experienced with these types of loans such

that they are in stage 2 and stage 3. The higher rates are more

pronounced in unsecured retail lending requiring further

segmentation. For wholesale lending, forborne loans are typically

assessed individually. Credit risk ratings are intrinsic to the

impairment assessments. The individual impairment assessment

takes into account the higher risk of the future non-payment inherent

in forborne loans.

Refinance risk

Personal lending

Interest only mortgages incorporate bullet payments at the point of

final maturity. To reduce refinance risk, an initial on-boarding

assessment of customers’ affordability is made on a capital

repayment basis and every customer has a credible defined

repayment strategy. Additionally, the customer is contacted during

the mortgage term to check the status of the repayment strategy. In

situations where it is identified that a borrower is expected not to be

able to repay a bullet/balloon payment, the customer is offered advice

and options to help them repay the loan in accordance with their loan

agreement. In the event that this is not possible, the customer will

either default on the repayment or it is likely that the bank may need

to apply forbearance to the loan. In either circumstance this gives rise

to a credit impaired event.

Wholesale lending

Many types of wholesale lending incorporate bullet/balloon payments

at the point of final maturity; often, the intention or assumption is that

the borrower will take out a new loan to settle the existing debt.

Where this is true the term refinance risk refers generally to the

possibility that, at the point that such a repayment is due, a borrower

cannot refinance by borrowing to repay existing debt. In situations

where it is identified that a borrower is expected not to be able either

to repay a bullet/balloon payment or to be capable of refinancing their

existing debt on commercial terms then the customer will either

default on the repayment or it is likely that the bank may need to

refinance the loan on terms it would not normally offer in the ordinary

course of business. In either circumstance this gives rise to a loss

event and the loan will be considered credit impaired.

Impairment assessment

(Audited)

For details of our impairment policies on loans and advances and

financial investments, see Note 1.2(g) on the Financial Statements.

Write-off of loans and advances

(Audited)

For details of our policy on the write-off of loans and advances, see

Note 1.2(g) on the Financial Statements.

Personal lending

Property collateral for residential mortgages is repossessed and sold

on behalf of the borrower only when the debt recovery procedures

have been unsuccessful. Any portion of the balance not covered

following the realisation of security is written-off. Unsecured personal

lending products are normally written off, when there is no realistic

prospect of full recovery.

Wholesale lending

Wholesale loans and advances are written off where normal

collection procedures have been unsuccessful to the extent that

there appears no realistic prospect of repayment. These procedures

may include a referral of the business relationship to a debt recovery

company. Debt reorganisation will be considered at all times and may

involve, in exceptional circumstances and in the absence of any viable

alternative, a partial write-off in exchange for a commitment to repay

the remaining balance.

In the event of bankruptcy or similar proceedings, write-off for both

personal and wholesale lending may occur earlier than at the periods

stated above. Collections procedures may continue after write-off.

Credit risk in 2023

Detailed analysis of ECL can be found on pages 32 to 52.

A summary of our current policies and practices regarding credit risk

is set out on pages 24 to 25.

Climate risk

Our climate scenarios

In 2023, we have considered four bespoke scenarios that were

designed to articulate our view of the range of potential outcomes for

global climate change. In our climate scenario analysis, we consider,

separately: transition risk arising from the process of moving to a net

zero economy, including changes in policy, technology, consumer

behaviour and stakeholder perception, which will each impact

borrowers’ operating income, financing requirements and asset


HSBC UK Bank plc Annual Report and Accounts 2023	25

values; and physical risk arising from the increased frequency and

severity of weather events, such as hurricanes and floods, or chronic

shifts in weather patterns, which will each impact property values,

repair costs and lead to business interruptions.

Our scenarios were:

– the Net Zero scenario, which is consistent with the Paris

Agreement. This assumes that there will be orderly but

considerable climate action, limiting global warming to no more

than 1.5°C by 2100, when compared with pre-industrial levels;

– the Current Commitments scenario, which assumes that climate

action is limited to current governmental committed policies,

including already implemented actions, leading to global

temperature rises of 2.4°C by 2100. This slow transition scenario

helps us to determine the actions we need to take to reach our

net zero ambition while operating in a world that is not net zero;

– the Delayed Transition Risk scenario, which assumes that climate

action is delayed until 2030 with a late disorderly transition to net

zero but stringent and rapid enough to limit global warming to

under 2°C by 2100. This scenario allows us to stress test severe

but plausible transition risk impacts;

– the Downside Physical Risk scenario, which assumes climate

action is limited to currently implemented governmental policies,

leading to extreme global warming with global temperatures

increasing by greater than 4°C by 2100. This scenario allows us to

assess physical risks associated with climate change.

We consider our Current Commitments scenario as the most likely

scenario to transpire over the next five years. Under the Current

Commitments scenario, we expect immaterial levels of losses

relating to transition risks. However, the rise in global warming will

lead to increasing levels of physical risk losses in later years. Based

on this scenario the potential impact on expected credit losses is not

considered material over the next five years, as the impacts of

climate risk will emerge later in the following decades.

Summary of credit risk

To help investors and other stakeholders better understand the risks

we manage, we have provided at 31 December 23, a number of

disclosures recommended by the Taskforce on Disclosures about

Expected Credit Losses ('DECL'). The DECL Taskforce, which was

jointly established by the Financial Conduct Authority, Financial

Reporting Council and the Prudential Regulation Authority, was

created to help guide ECL disclosure practice and to encourage

consistency and comparability across financial institutions. HSBC

Holdings have adopted the majority of DECL recommendations. This

section includes new and redesigned disclosures as follows:

– Stage 2 decomposition for loans and advances to customers and

banks, see page 31;

– Alignment of management judgemental adjustments to the DECL

definition with additional qualitative and quantitative granularity,

see pages 35 to 36;

– Reconciliation of management judgemental adjustments to

reported ECL, see pages 35 to 36;

– Reconciliation of changes in gross carrying and allowances for

loans and advances to banks and customers see page 38;

– Reconciliation of changes in nominal amount and allowances for

loan commitments and financial guarantees, see page 39;

– Wholesale lending – credit risk profile by obligor grade for loans

and advances at amortised cost, see page 45;

– Wholesale lending - credit risk profile by obligor grade for loan and

other credit-related commitments and financial guarantees see

page 46;

– First lien residential mortgages - reconciliation of changes in gross

carrying/nominal amount and allowances for loans and advances

to customers including loan commitments and financial

guarantees, see page 50;

– Credit cards - reconciliation of changes in gross carrying / nominal

amount and allowances for loans and advances to customers

including loan commitments and financial guarantees, see page

50;

– Other personal lending - reconciliation of changes in gross

carrying/nominal amount and allowances for loans and advances

to customers including loan commitments and financial

guarantees,see page 51;

– Personal lending - credit risk profile by internal PD band for loans

and advances to customers at amortised cost, see page 51; and

– Personal lending - credit risk profile by internal PD band for loan

and other credit-related commitments and financial guarantees,

see page 52.

Comparative information for the prior period has not been presented

in the Annual Report and Accounts 2023 as we recognised and

prioritised the importance of increasing the comparability of our

external disclosures within the timeline recommended by the DECL

Taskforce. While prior period information can be valuable in certain

contexts, we believe the prospective expansion of the level of

disclosures out-weights the benefits of presenting data from prior

years.

The disclosure below presents the gross carrying/nominal amount of

financial instruments to which the impairment requirements in IFRS 9

are applied and the associated allowance for ECL.

The following table provides an overview of the group and bank's

credit risk exposure. As the majority of the group's financial

instruments are held by the bank, the remaining IFRS 7 credit

disclosures are provided on a group only basis.

Report of the Directors | Risk


26	HSBC UK Bank plc Annual Report and Accounts 2023


Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
(Audited)
The group	At 31 Dec 2023		At 31 Dec 2022
	Gross carrying/ nominal amount	Allowance for ECL 1	Gross carrying/ nominal amount	Allowance for ECL 1
	£m	£m	£m	£m
Loans and advances to customers at amortised cost	213,591	(1,704)	206,055	(1,912)
– personal	143,315	(703)	138,626	(872)
– corporate and commercial	62,927	(949)	64,955	(1,035)
– non-bank financial institutions	7,349	(52)	2,474	(5)
Loans and advances to banks at amortised cost	7,982	(2)	6,359	(2)
Other financial assets measured at amortised cost	87,253	(10)	109,137	(5)
– cash and balances at central banks	65,719	—	94,407	—
– items in the course of collection from other banks	284	—	353	—
– reverse repurchase agreements – non-trading	7,686	—	7,406	—
– financial investments	11,820	(1)	5,160	—
– prepayments, accrued income and other assets2	1,744	(9)	1,811	(5)
Total gross carrying amount on-balance sheet	308,826	(1,716)	321,551	(1,919)
Loans and other credit related commitments	70,381	(99)	67,628	(91)
– personal	41,180	(10)	42,059	(9)
– corporate and commercial	25,694	(87)	24,669	(82)
– non-bank financial institutions	3,507	(2)	900	—
Financial guarantees	1,121	(2)	1,148	(6)
– personal	312	—	342	—
– corporate and commercial	526	(2)	518	(6)
– non-bank financial institutions	283	—	288	—
Total nominal amount off-balance sheet3	71,502	(101)	68,776	(97)
	380,328	(1,817)	390,327	(2,016)

	Fair value	Memorandum allowance for ECL4	Fair value	Memorandum allowance for ECL4
	£m	£m	£m	£m
Debt instruments measured at 'FVOCI'	14,495	(1)	10,932	(1)

1The 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.

2Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. ‘Prepayments, accrued income and other assets’

as presented within the consolidated balance sheet on page 79 includes both financial and non-financial assets.

3Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

4Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is

recognised in ‘Change in expected credit losses and other credit impairment charges’ in the income statement.


HSBC UK Bank plc Annual Report and Accounts 2023	27


Summary of financial instruments to which the impairment requirements in IFRS 9 are applied (continued)
(Audited)
	At 31 Dec 2023		At 31 Dec 2022
	Gross carrying/ nominal amount	Allowance for ECL 1	Gross carrying/ nominal amount	Allowance for ECL 1
The bank	£m	£m	£m	£m
Loans and advances to customers at amortised cost	202,507	(1,493)	201,389	(1,723)
– personal	139,675	(593)	135,110	(742)
– corporate and commercial	52,498	(858)	55,681	(976)
– non-bank financial institutions	10,334	(42)	10,598	(5)
Loans and advances to banks at amortised cost	13,644	(2)	9,306	(2)
Other financial assets measured at amortised cost	86,882	(10)	108,967	(5)
– cash and balances at central banks	65,719	—	94,407	—
– items in the course of collection from other banks	96	—	154	—
– reverse repurchase agreements – non-trading	7,686	—	7,406	—
– financial investments	11,609	(1)	5,160	—
– prepayments, accrued income and other assets2	1,772	(9)	1,840	(5)
Total gross carrying amount on-balance sheet	303,033	(1,505)	319,662	(1,730)
Loans and other credit related commitments	53,388	(93)	54,324	(88)
– personal	30,563	(9)	31,527	(8)
– corporate and commercial	21,739	(83)	21,916	(80)
– non-bank financial institutions	1,086	(1)	881	—
Financial guarantees	1,121	(2)	1,148	(6)
– personal	312	—	342	—
– corporate and commercial	526	(2)	518	(6)
– non-bank financial institutions	283	—	288	—
Total nominal amount off-balance sheet3	54,509	(95)	55,472	(94)
	357,542	(1,600)	375,134	(1,824)

	Fair value	Memorandum allowance for ECL4	Fair value	Memorandum allowance for ECL4
	£m	£m	£m	£m
Debt instruments measured at 'FVOCI'	14,495	(1)	10,932	(1)

1 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.

2 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. 'Prepayments, accrued income and other assets'

as presented within the bank's balance sheet on page 82 includes both financial and non-financial assets.

3 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

4 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is

recognised in ‘Change in expected credit losses and other credit impairment charges’ in the income statement.

The following table provides an overview of the group’s credit risk by

stage and industry, and the associated ECL coverage. The financial

assets recorded in each stage have the following characteristics:

– Stage 1: These financial assets are unimpaired and without

significant increase in credit risk on which a 12-month allowance

for ECL is recognised.

– Stage 2: a significant increase in credit risk has been experienced

on these financial assets since initial recognition for which a

lifetime ECL is recognised.

– Stage 3: There is objective evidence of impairment, and the

financial assets are therefore considered to be in default or

otherwise credit-impaired on which a lifetime ECL is recognised.

– POCI: Financial assets that are purchased or originated credit

impaired at a deep discount are seen to reflect the incurred credit

losses on which a lifetime ECL is recognised.

Report of the Directors | Risk


28	HSBC UK Bank plc Annual Report and Accounts 2023


Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2023
(Audited)
	Gross carrying/nominal amount1					Allowance for ECL					ECL coverage %
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%	%
Loans and advances to customers at amortised cost	167,396	42,286	3,909	—	213,591	(286)	(755)	(663)	—	(1,704)	0.2	1.8	17.0	—	0.8
– personal	114,765	27,595	955	—	143,315	(119)	(384)	(200)	—	(703)	0.1	1.4	20.9	—	0.5
– corporate and commercial	46,197	13,854	2,876	—	62,927	(156)	(365)	(428)	—	(949)	0.3	2.6	14.9	—	1.5
– non-bank financial institutions	6,434	837	78	—	7,349	(11)	(6)	(35)	—	(52)	0.2	0.7	44.9	—	0.7
Loans and advances to banks at amortised cost	7,980	—	2	—	7,982	—	—	(2)	—	(2)	—	—	100.0	—	—
Other financial assets measured at amortised cost	87,073	154	26	—	87,253	(7)	—	(3)	—	(10)	—	—	11.5	—	—
Loan and other credit-related commitments	65,257	4,794	330	—	70,381	(31)	(25)	(43)	—	(99)	—	0.5	13.0	—	0.1
– personal	40,543	568	69	—	41,180	(8)	—	(2)	—	(10)	—	—	2.9	—	—
– corporate and commercial	21,845	3,608	241	—	25,694	(22)	(24)	(41)	—	(87)	0.1	0.7	17.0	—	0.3
– financial	2,869	618	20	—	3,507	(1)	(1)	—	—	(2)	—	0.2	—	—	0.1
Financial guarantee and similar contracts	810	300	11	—	1,121	—	—	(2)	—	(2)	—	—	18.2	—	0.2
– personal	304	8	—	—	312	—	—	—	—	—	—	—	—	—	—
– corporate and commercial	409	106	11	—	526	—	—	(2)	—	(2)	—	—	18.2	—	0.4
– financial	97	186	—	—	283	—	—	—	—	—	—	—	—	—	—
31 Dec 2023	328,516	47,534	4,278	—	380,328	(324)	(780)	(713)	—	(1,817)	0.1	1.6	16.7	—	0.5

1Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

Unless identified at an earlier stage, all financial assets are deemed to

have suffered a significant increase in credit risk when they are 30

DPD and are transferred from Stage 1 to Stage 2. The following

disclosure presents the ageing of Stage 2 financial assets

by those less than 30 DPD and greater than 30 DPD and therefore

presents those financial assets classified as stage 2 due to ageing (30

DPD) and those identified at an earlier stage (less than 30 DPD).


Stage 2 days past due analysis at 31 December 2023
(Audited)
	Gross carrying amount				Allowance for ECL				ECL coverage %
	Stage 2	of which:	of which:	of which:	Stage 2	of which:	of which:	of which:	Stage 2	of which:	of which:	of which:
	Stage 2	Up-to- date	1 to 29 DPD1	30 and > DPD1	Stage 2	Up-to- date	1 to 29 DPD1	30 and > DPD1	Stage 2	Up-to- date	1 to 29 DPD1	30 and > DPD1
	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
Loans and advances to customers at amortised cost:	42,286	41,584	465	237	(755)	(685)	(42)	(28)	1.8	1.6	9.0	11.8
– personal	27,595	27,299	190	106	(384)	(328)	(32)	(24)	1.4	1.2	16.8	22.6
– corporate and commercial	13,854	13,546	206	102	(365)	(351)	(10)	(4)	2.6	2.6	4.9	3.9
– non-bank financial institutions	837	739	69	29	(6)	(6)	—	—	0.7	0.8	—	—
Loans and advances to banks at amortised cost	—	—	—	—	—	—	—	—	—	—	—	—
Other financial assets measured at amortised cost	154	152	1	1	—	—	—	—	—	—	—	—

1 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.


HSBC UK Bank plc Annual Report and Accounts 2023	29


Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at 31 December 2022 (continued)
(Audited)
	Gross carrying/nominal amount1					Allowance for ECL					ECL coverage %
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%	%
Loans and advances to customers at amortised cost	154,818	46,693	4,521	23	206,055	(248)	(941)	(722)	(1)	(1,912)	0.2	2.0	16.0	4.3	0.9
– personal	106,745	31,041	840	—	138,626	(112)	(571)	(189)	—	(872)	0.1	1.8	22.5	—	0.6
– corporate and commercial	45,739	15,520	3,673	23	64,955	(134)	(368)	(532)	(1)	(1,035)	0.3	2.4	14.5	4.3	1.6
– non-bank financial institutions	2,334	132	8	—	2,474	(2)	(2)	(1)	—	(5)	0.1	1.5	12.5	—	0.2
Loans and advances to banks at amortised cost	6,354	1	4	—	6,359	—	—	(2)	—	(2)	—	—	50.0	—	—
Other financial assets measured at amortised cost	108,987	126	24	—	109,137	—	(1)	(4)	—	(5)	—	0.8	16.7	—	—
Loan and other credit-related commitments	62,581	4,806	241	—	67,628	(29)	(37)	(25)	—	(91)	—	0.8	10.4	—	0.1
– personal	41,614	358	87	—	42,059	(9)	—	—	—	(9)	—	—	—	—	—
– corporate and commercial	20,120	4,395	154	—	24,669	(20)	(37)	(25)	—	(82)	0.1	0.8	16.2	—	0.3
– financial	847	53	—	—	900	—	—	—	—	—	—	—	—	—	—
Financial guarantee and similar contracts	983	147	18	—	1,148	—	—	(6)	—	(6)	—	—	33.3	—	0.5
– personal	335	7	—	—	342	—	—	—	—	—	—	—	—	—	—
– corporate and commercial	407	93	18	—	518	—	—	(6)	—	(6)	—	—	33.3	—	1.2
– financial	241	47	—	—	288	—	—	—	—	—	—	—	—	—	—
At 31 Dec 2022	333,723	51,773	4,808	23	390,327	(277)	(979)	(759)	(1)	(2,016)	0.1	1.9	15.8	4.3	0.5

1Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.


Stage 2 days past due analysis at 31 December 2022 (continued)
(Audited)
	Gross carrying amount				Allowance for ECL				ECL coverage %
	Stage 2	of which:	of which:	of which:	Stage 2	of which:	of which:	of which:	Stage 2	of which:	of which:	of which:
	Stage 2	Up-to- date	1 to 29 DPD1	30 and > DPD1	Stage 2	Up-to- date	1 to 29 DPD1	30 and > DPD1	Stage 2	Up-to- date	1 to 29 DPD1	30 and > DPD1
	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
Loans and advances to customers at amortised cost:	46,693	46,050	386	257	(941)	(819)	(70)	(52)	2.0	1.8	18.1	20.2
– personal	31,041	30,689	236	116	(571)	(465)	(61)	(45)	1.8	1.5	25.8	38.8
– corporate and commercial	15,520	15,230	150	140	(368)	(352)	(9)	(7)	2.4	2.3	6.0	5.0
– non-bank financial institutions	132	131	—	1	(2)	(2)	—	—	1.5	1.5	—	—
Loans and advances to banks at amortised cost	1	1	—	—	—	—	—	—	—	—	—	—
Other financial assets measured at amortised cost	126	126	—	—	(1)	(1)	—	—	0.8	0.8	—	—

1 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.

Report of the Directors | Risk


30	HSBC UK Bank plc Annual Report and Accounts 2023

Stage 2 decomposition

The following disclosure presents the stage 2 decomposition of gross

carrying amount and associated allowances for ECL for loans and

advances to customers and banks. It also sets out the reasons that

caused the exposures to be classified as stage 2 and therefore

presented as a significant increase in credit risk at 31 December

2023.

The quantitative classification shows gross carrying amount and

allowances for ECL for which the applicable reporting date probability

of default ('PD') measure exceeds defined quantitative thresholds for

retail and wholesale exposures.

The qualitative classification primarily accounts for CRR deterioration,

watch-and-worry and retail management judgemental adjustments.

A summary of our current policies and practices for the significant

increase in credit risk is set out in ‘Summary of material policies’ on

page 86.



Loans and advances to customers and banks1
	At 31 Dec 2023
	Loans and advances to customers						Loans and advances to banks at amortised cost	Total stage 2
	Personal	of which:			Corporate and commercial	Non-bank financial institutions
	Personal	first lien mortgage	credit cards	other personal lending	Corporate and commercial	Non-bank financial institutions
	£m	£m	£m	£m	£m	£m	£m	£m
Quantitative	22,512	21,422	494	596	10,731	795	—	34,038
Qualitative	5,081	3,923	625	533	3,024	13	—	8,118
of which: forbearance	49	7	24	18	381	—	—	430
30 DPD backstop	2	1	—	1	99	29	—	130
Total gross carrying amount	27,595	25,346	1,119	1,130	13,854	837	—	42,286

Quantitative	(284)	(57)	(126)	(101)	(293)	(6)	—	(583)
Qualitative	(100)	(25)	(41)	(34)	(69)	—	—	(169)
of which: forbearance	(1)	—	(1)	—	(5)	—	—	(6)
30 DPD backstop	—	—	—	—	(3)	—	—	(3)
Total allowance for ECL	(384)	(82)	(167)	(135)	(365)	(6)	—	(755)

ECL coverage %	1.4	0.3	14.9	11.9	2.6	0.7	—	1.8

1 Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross

exposure and ECL have been assigned in order of categories presented.

Credit exposure

Maximum exposure to credit risk

(Audited)

‘Maximum exposure to credit risk’ table

The following table presents our maximum exposure before taking

account of any collateral held or other credit enhancements (unless such

enhancements meet accounting offsetting requirements). The table

excludes financial instruments whose carrying amount best represents

the net exposure to credit risk; and it excludes equity securities as they

are not subject to credit risk. For the financial assets recognised on the

balance sheet, the maximum exposure to credit risk equals their carrying

amount and is net of the allowance for ECL; for financial guarantees and

similar contracts granted, it is the maximum amount that we would have

to pay if the guarantees were called upon. For loan commitments and

other credit-related commitments, it is generally the full amount of the

committed facilities.

The offset in the table relates to amounts where there is a legally

enforceable right of offset in the event of counterparty default and

where, as a result, there is a net exposure for credit risk purposes.

However, as there is no intention to settle these balances on a net basis

under normal circumstances, they do not qualify for net presentation for

accounting purposes. No offset has been applied to off-balance sheet

collateral. In the case of derivatives, the offset column also includes

collateral received in cash and other financial assets.

The following table provides information on balance sheet items,

offsets, and loan and other credit-related commitments.

The offset on derivatives remains in line with the movements in

maximum exposure amounts.

Other credit risk mitigants

While not disclosed as an offset in the following ‘Maximum exposure

to credit risk’ table, other arrangements are in place which reduce our

maximum exposure to credit risk. These include a charge over

collateral on borrowers’ specific assets such as residential properties

and collateral held in the form of financial instruments that are not

held on balance sheet. See Note 22 for further details of collateral in

respect of certain loans and advances and derivatives.


HSBC UK Bank plc Annual Report and Accounts 2023	31


Maximum exposure to credit risk
(Audited)	31 Dec 2023			31 Dec 2022
	Maximum exposure	Offset	Net	Maximum exposure	Offset	Net
The group	£m	£m	£m	£m	£m	£m
Loans and advances to customers held at amortised cost	211,887	(2,922)	208,965	204,143	(2,786)	201,357
– personal	142,612	—	142,612	137,754	—	137,754
– corporate and commercial	61,978	(2,886)	59,092	63,920	(2,752)	61,168
– non-bank financial institutions	7,297	(36)	7,261	2,469	(34)	2,435
Loans and advances to banks at amortised cost	7,980	—	7,980	6,357	—	6,357
Other financial assets held at amortised cost	87,369	—	87,369	109,256	—	109,256
– cash and balances at central banks	65,719	—	65,719	94,407	—	94,407
– items in the course of collection from other banks	284	—	284	353	—	353
– reverse repurchase agreements – non-trading	7,686	—	7,686	7,406	—	7,406
– financial investments	11,819	—	11,819	5,160	—	5,160
– other assets	1,861	—	1,861	1,930	—	1,930
Derivatives	178	(165)	13	546	(522)	24
Total on-balance sheet exposure to credit risk	307,414	(3,087)	304,327	320,302	(3,308)	316,994
Total off-balance sheet	76,522	—	76,522	74,057	—	74,057
– financial guarantees and similar contracts	3,429	—	3,429	3,665	—	3,665
– loan and other credit-related commitments	73,093	—	73,093	70,392	—	70,392

Concentration of exposures

(Audited)

The diversification of our lending portfolio and our broad range of

businesses and products ensured that we did not overly depend on

any one business segment to generate growth in 2023.

Loans and advances to customers and banks held at

amortised cost

The table on page 29 analyses loans and advances by industry sector

to show any concentration of credit risk exposures.

Other financial assets held at amortised cost

Financial investments

Our holdings of government and government agency debt securities,

corporate debt securities, asset-backed securities and other

securities were spread across a range of issuers in 2023 with 93%

(2022: 93%) invested in government or government agency debt

securities.

Items in the course of collection from other banks

Settlement risk arises in any situations where a payment in cash,

securities or equities is made with the expectation of a corresponding

receipt of cash, securities or equities. Daily settlement limits are

established for counterparties to cover the aggregate of transactions

with each counterparty on any single day.

The group substantially mitigates settlement risk on many

transactions, particularly those involving securities, by settling

through assured payment systems, or on a delivery-versus-payment

basis.

Measurement uncertainty and sensitivity

analysis of ECL estimates

(Audited)

The recognition and measurement of ECL involves the use of

significant judgement and estimation. We form multiple economic

scenarios based on economic forecasts, apply these assumptions to

credit risk models to estimate future credit losses, and probability

weight the results to determine an unbiased ECL estimate.

Management assessed the current economic environment, reviewed

the latest economic forecasts and discussed key risks before

selecting the economic scenarios and their weightings.

Scenarios were constructed to reflect the latest geopolitical risks and

macroeconomic developments, including the Israel-Hamas war and

subsequent disruptions in the Red Sea, and current inflation and

monetary policy expectations.

Management judgemental adjustments are used where modelled

ECL does not fully reflect the identified risks and related uncertainty,

or to capture significant late-breaking events.

At 31 December 2023, for Wholesale portfolio, there was a reduction

in management judgemental adjustments compared with

31 December 2022, as modelled outcomes better reflected the key

risks at 31 December 2023. For retail, there was an increase in other

credit judgements due to the potential delayed impact of economic

scenarios on unsecured portfolio defaults.

Methodology

Four economic scenarios are used to capture the current economic

environment and to articulate management’s view of the range of

risks and potential outcomes. Each scenario is updated with the

latest economic forecasts and estimates every quarter.

Three of the scenarios, the Upside, Central and Downside, are drawn

from consensus forecasts, market data and distributional estimates

of the entire range of economic outcomes.

The Central scenario is deemed the ‘most likely’ scenario, and usually

attracts the largest probability weighting, while the outer scenarios

represent the tails of the distribution, which are less likely to occur. It

is created using the average of a panel of external forecasters.

The Consensus Upside and Downside scenarios are created with

reference to distributions that capture forecasters' views of the entire

range of economic outcomes. In the later years of the scenarios,

projections revert to long-term consensus trend expectations.

Reversion to trend is done with reference to historically observed

quarterly changes in the values of macroeconomic variables.

The fourth scenario, Downside 2, is designed to represent

management’s view of severe downside risks. It is a globally

consistent narrative-driven scenario that explores more extreme

economic outcomes than those captured by the consensus

scenarios. In this scenario, variables do not, by design, revert to long-

term trend expectations. They may instead explore alternative states

of equilibrium, where economic activity moves permanently away

from past trends.

The consensus Downside and the consensus Upside scenarios are

each constructed to be consistent with a 10% probability. The

Downside 2 is constructed to a 5% probability. The Central Scenario

is assigned the remaining 75%. This weighting scheme is deemed

appropriate for the unbiased estimation of ECL in most

circumstances. However, management may depart from this

probability based scenario weighting approach when the economic

outlook is determined to be particularly uncertain and risks are

elevated.

In the fourth quarter of 2023, the standard approach to scenario

weightings was applied as key uncertainty and risk metrics were

aligned to their historical average. Economic forecasts for the Central

Report of the Directors | Risk


32	HSBC UK Bank plc Annual Report and Accounts 2023

scenario have remained stable, and the dispersion within consensus

forecast panels has remained low, even as the Israel-Hamas war

escalated. Risks, including the economic consequences of a broader

war in the Middle East, are reflected in Downside scenarios.

Scenarios produced to calculate ECL are aligned to HSBC Group’s top

and emerging risks.

Description of consensus economic scenarios

The economic assumptions presented in this section have been

formed by the HSBC Group with reference to external forecasts and

estimates, specifically for the purpose of calculating ECL.

Forecasts remain subject to uncertainty and variability. Upside and

Downside scenarios are constructed so that they capture risks that

could alter the trajectory of the economy and are designed to

encompass the potential crystallisation of key macro-financial risks.

In our key markets, Central scenario forecasts remained broadly

stable in the fourth quarter of 2023, from the prior quarter. The key

exception was monetary policy, where expectations for interest rate

cuts were brought forward. The outlook for 2024 continues to be for

a period of below-trend growth, while inflation remains above central

bank targets.

At the end of 2023, risks to the economic outlook included a number

of significant geopolitical issues. Within our Downside scenarios, the

economic consequences from the crystallisation of those risks are

captured by higher commodity and goods prices, the reacceleration

of inflation, a further rise in interest rates and recession.

The scenarios used to calculate ECL in the Annual Report and

Accounts 2023 are described below.

The consensus Central scenario

HSBC UK’s Central scenario reflects a low growth and higher interest

rate environment where GDP growth is expected to be weaker in

2024 relative to 2023.

The period of below-trend GDP growth through 2024 is driven by the

lagged effects of higher interest rates and inflation. Household

discretionary income remains pressured and business margins

deteriorate amid higher refinancing costs. Growth only returns to its

long-term expected trend in later years, once inflation reverts back

towards central bank targets and interest rates stabilise at lower

levels.

UK GDP is expected to increase by 0.3% in 2024 in the Central

scenario and the average rate of UK GDP growth is 1.3% over the

five-year forecast period.

The key features of our Central scenario are:

– An expected slowdown in GDP growth through 2024, followed by

a moderate recovery in 2025. The slowdown is particularly

notable, with growth close to zero through much of 2024. The key

driver of weaker growth is high interest rates, which act to deter

consumption and investment.

– Unemployment rises moderately as economic activity slows, but

is set to remain low by historical standards.

– Inflation is expected to continue to fall as commodity prices

decline and supply disruptions abate and wage growth moderates.

It converges towards central banks' target rates by early 2025.

– Weak conditions in housing markets are expected to persist

through 2024 and 2025, as higher interest rates and, in many

cases, declining prices, depress activity.

– Challenging conditions are also forecast to continue in the

commercial property sector. Structural changes to demand in the

office segment in particular have driven lower valuations.

– Policy interest rates in key markets are forecast to have peaked

and are projected to decline in 2024. In the longer term, they are

expected to remain at a higher level compared with the post-

global financial crisis period.

– The Brent crude oil price is forecast to average around $75 per

barrel over the projection period.

The Central scenario was first created with forecasts available in

November, and reviewed continually until late December.

The following table describes key macroeconomic variables in the

consensus Central scenario.


Central scenario
	Average 2024–20281	Average 2023–20271
	UK%	UK%
GDP growth rate (annual average growth rate, %)	1.3	1.1
Unemployment rate (%)	4.4	4.3
Inflation rate (annual average growth rate, %)	2.4	3.1
House price index (annual average growth rate, %)	0.8	0.4
Central bank policy rate (annual average, %)	4.1	3.8

1 The five-year average is calculated over a projected period of 20

quarters during the five-year period.

The graph compares the Central scenario at year end 2022 with

economic expectations at the end of 2023.

GDP growth: Comparison of Central scenarios

Note: Real GDP shown as year-on-year percentage change.

The consensus Upside scenario

Compared with the consensus Central scenario, the consensus

Upside scenario features stronger recovery in economic activity in the

near term, before converging to long-run trend expectations. It also

incorporates a faster fall in the rate of inflation than incorporated in

the Central scenario.

The scenario is consistent with a number of key upside risk themes.

These include a faster fall in the rate of inflation that allows Central

banks to reduce interest rates more quickly; an easing in financial

conditions; and de-escalation in geopolitical tensions, as Israel-Hamas

and Russia-Ukraine wars move towards conclusions, and the US-

China relation improves.

The following table describes key macroeconomic variables in the

consensus Upside scenario.


Consensus Upside scenario best outcome
	2024 Q1- 2028 Q4	2023 Q1- 2027 Q4
GDP growth rate (%, start-to-peak)1	10.8 (4Q28)	14.6 (4Q27)
Unemployment rate (%, min)2	3.1 (4Q24)	3.5 (4Q23)
House price index (%, start-to-peak)1	13.0 (4Q28)	7.8 (4Q27)
Inflation rate (YoY % change, Min)3	1.3 (2Q25)	0.7 (1Q24)
Central bank policy rate (%, min)2	3.7 (3Q28)	3.1 (3Q27)

1 Cumulative change to the highest level of the series during the 20-

quarter projection.

2 Lowest projected unemployment or policy interest rate in the scenario.

3 Lowest projected YoY percentage change in inflation in the scenario.


HSBC UK Bank plc Annual Report and Accounts 2023	33

Downside scenarios

Downside scenarios explore the intensification and crystallisation of a

number of key economic and financial risks, in which geopolitical

tensions flare, causing an inflation shock and deep global recession.

The geopolitical environment also present risks, including:

– a prolonged conflict in the Middle East that undermines

confidence, drives an increase in global energy costs and reduces

trade and investment

– a prolonged Russia-Ukraine war with escalation beyond Ukraine’s

borders and further disrupts energy, fertiliser and food supplies

– continued differences between the US and other countries with

China, which could affect sentiment and restrict global goods

trade and supply chains for critical technologies.

High inflation and higher interest rates also remain key risks. Should

geopolitical tensions escalate, energy and food prices could rise and

increase pressure on household budgets and firms' costs.

A wage-price spiral triggered by higher inflation and labour supply

shortages, could put sustained upward pressure on wages and

services prices, aggravating cost pressures and the squeeze on

household real incomes and corporate margins. In turn, it raises the

risk of a more forceful policy response from the BoE, a steeper

trajectory for interest rates, significantly higher default and ultimately,

deep economic recession.

The consensus Downside scenario

In the consensus Downside scenario, economic activity is

considerably weaker compared with the Central scenario. In this

scenario, GDP declines, unemployment rates rise and asset prices

fall. The scenario features an escalation of geopolitical tensions,

which causes a surge in inflation as supply chain constraints intensify

and energy prices rise. The scenario also features a temporary

increase in interest rates above the Central scenario, before the

effects of weaker demand begin to dominate, leading to a fall in

commodity prices and lower inflation.

The following table describes key macroeconomic variables in the

Consensus Downside scenario.


Consensus Downside scenario worst outcome
	2024 Q1- 2028 Q4	2023 Q1- 2027 Q4
GDP growth rate (%, start-to-trough)1	(1.0) (2Q25)	(3.0) (1Q25)
Unemployment rate (%, max)2	6.4 (1Q25)	5.8 (2Q24)
House price index (%, start-to-trough)1	(12.0) (2Q25)	(15.0) (4Q24)
Inflation rate (YoY % change, max)3	4.1 (1Q24)	10.8 (1Q23)
Central bank policy rate (%, max)2	5.7 (1Q24)	5.1 (3Q23)

1 Cumulative change to the lowest level of the series during the 20-

quarter projection.

2 The highest projected unemployment or policy interest rate in the

scenario.

3 The highest projected YoY percentage change in inflation in the

scenario.

Downside 2 scenario

The Downside 2 scenario features a deep global recession and

reflects management's view of the tail of the economic distribution. It

incorporates the crystallisation of a number of risks simultaneously,

including further escalation of geopolitical crises globally, which

creates severe supply disruptions to goods and energy markets. As

inflation surges and central banks tighten monetary policy further,

confidence evaporates. However, this impulse is expected to prove

short lived as a large downside demand pressure causes commodity

prices to correct sharply and global price inflation to fall as a severe

and prolonged recession takes hold.

The table below describes key macroeconomic variables in the

Downside 2 scenario.


Downside 2 scenario worst outcome
	2024 Q1- 2028 Q4	2023 Q1- 2027 Q4
GDP growth rate (%, start-to-trough)1	(8.8) (2Q25)	(7.5) (2Q24)
Unemployment rate (%, max)2	8.4 (2Q25)	8.7 (2Q24)
House price index (%, start-to-trough)1	(30.2) (4Q25)	(32.9) (1Q25)
Inflation rate (YoY % change, max)3	10.1 (2Q24)	13.5 (2Q23)
Central bank policy rate (%, max)2	6.0 (1Q24)	5.6 (4Q23)

1 Cumulative change to the lowest level of the series during the 20-

quarter projection.

2 The highest projected unemployment or policy interest rate in the

scenario.

3 The highest projected YoY percentage change in inflation in the

scenario.

Following graph shows the historical and forecasted GDP growth rate

for the various economic scenarios.

Scenario weighting

In reviewing the economic conjuncture, the level of uncertainty and

risk, management has considered UK specific factors.

For fourth quarter of 2023, key consideration around uncertainty

attached to the Central scenario projections focused on:

– the risks that the Israel-Hamas war escalates and affects

economic expectations;

– the lagged impact of elevated interest rates on household

finances and businesses, and the implications of recent changes

to monetary policy expectations on growth and employment; and

– the outlook for real estate sector in the UK.

Although these risk factors remain significant, management assessed

that they were adequately reflected in scenarios at the standard

weighting. The Central scenario reflects a very weak growth

environment in which recession risks remain high.

In the fourth quarter of 2022, deviation from the standard weightings

reflected uncertainty around the inflation and interest rate outlook

amid supply disruption to energy and food commodity markets due to

the Ukraine-Russia war. These uncertainties were reflected in the

measures of risk and uncertainty used to inform judgements around

the Central scenario. In particular, large forecast changes were

observed, alongside wide dispersion of forecasts around consensus

estimates and heightened financial market volatility.


Scenario weights %
	4Q23	4Q22
Upside	10.0	5.0
Central	75.0	60.0
Downside	10.0	25.0
Downside 2	5.0	10.0

Report of the Directors | Risk


34	HSBC UK Bank plc Annual Report and Accounts 2023

Critical estimates and judgements

The calculation of ECL under IFRS 9 involves significant judgements,

assumptions and estimates at 31 December 2023. These included:

– the selection of weights to apply to the economic scenarios given

the rapidly changing economic conditions and the inherent

uncertainty of the underlying forecast under each scenario;

– the selection of scenarios to consider given the changing nature of

macroeconomic and geopolitical risks that HSBC UK and the wider

economy faces; and

– estimating the economic effects of those scenarios on ECL,

particularly sector and portfolio specific risks, and the uncertainty

of default and recovery experience under all scenarios.

How economic scenarios are reflected in ECL calculations

Models are used to reflect economic scenarios on ECL estimates. As

described above, modelled assumptions and linkages based on

historical information could not alone produce relevant information

under the conditions experienced in 2023, and management

judgemental adjustments were still required to support modelled

outcomes.

HSBC Group have developed globally consistent methodologies for

the application of forward economic guidance into the calculation of

ECL for wholesale and retail credit risk. These standard approaches

are described below, followed by the management judgemental

adjustments made, including those to reflect the circumstances

experienced in 2023.

For our wholesale portfolios, a global methodology is used for the

estimation of the term structure of PD and LGD. For PDs, we

consider the correlation of forward economic guidance to default

rates for a particular industry in a country. For LGD calculations, we

consider the correlation of forward economic guidance to collateral

values and realisation rates for a particular country and industry. PDs

and LGDs are estimated for the entire term structure of each

instrument.

For impaired loans, ECL estimates are derived based on discounted

cash flow (‘DCF’) calculations for internal forward-looking scenarios

specific to individual company circumstances, see page 42.

Probability-weighted outcomes are applied, and depending on

materiality and status of the borrower, the number of scenarios

considered will change. Where relevant for the case being assessed,

forward economic guidance is incorporated as part of these

scenarios. LGD-driven proxy and modelled estimates are used for

certain less material cases.

For our retail portfolios, the models are predominantly based on

historical observations and correlations with default rates and

collateral values.

For PD, the impact of economic scenarios is modelled for each

portfolio, leveraging historical relationships between default rates and

macroeconomic variables. These are included within IFRS 9 ECL

estimates using either economic response models or models which

contain internal, external and macroeconomic variables. The

macroeconomic impact on PD is modelled over the period equal to

the remaining maturity of the underlying assets.

For LGD, the impact is modelled for mortgage portfolios by

forecasting future loan-to-value profiles for the remaining maturity of

the asset, leveraging national level house price index forecast and

applying the corresponding LGD expectation relative to the updated

forecast collateral values.

Management judgemental adjustments are described below.

Management judgemental adjustments

In the context of IFRS 9, management judgemental adjustments are

short-term increases or decreases to the modelled ECL at either a

customer, segment or portfolio level where management believes

ECL results do not sufficiently reflect the credit risk/expected credit

loses at the reporting date. These can relate to risks or uncertainties

which are not reflected in the models and/or to any late-breaking

events with significant uncertainty, subject to management review

and challenge.

This includes refining model inputs and outputs and using

adjustments to ECL based on management judgement and

quantitative analysis for impacts that are difficult to model.

The effect of management judgemental adjustments are considered

for balances and ECL when determining whether or not a significant

increase in credit risk has occurred and are attributed or allocated to a

stage as appropriate. This is in accordance with the internal

adjustments framework.

Management judgemental adjustments are reviewed under the

governance process for IFRS 9 (as detailed in the section ‘Credit risk

management’ on page 24). Review and challenge focuses on the

rationale and quantum of the adjustments with a further review

carried out by the second line of defence where significant. For some

management judgemental adjustments, internal frameworks

establish the conditions under which these adjustments should no

longer be required and as such are considered as part of the

governance process. This internal governance process allows

management judgemental adjustments to be reviewed regularly and,

where possible, to reduce the reliance on these through model

recalibration or redevelopment, as appropriate.

The drivers of management judgemental adjustments continue to

evolve with the economic environment, and as new risks emerge.

In addition to management judgemental adjustments there are also

'Other adjustments', which are made to address process limitations

and data/model deficiencies.

‘Management judgemental adjustments’ and ‘Other adjustments’

constitute the total value of adjustments to modelled ECL. For the

wholesale portfolio, defaulted exposures are assessed individually

and management judgemental adjustments are made only to the

performing portfolio.

Management judgemental adjustments made in estimating the

scenario-weighted reported ECL at 31 December 2023 are set out in

the following table.


Management judgemental adjustments to ECL at 31 December 20231
	Retail	Wholesale2	Total
	£m	£m	£m
Modelled ECL (A)3	523	488	1,011
Corporate lending adjustments	—	44	44
Inflation related adjustments	30	—	30
Other credit judgements	200	50	250
Total management judgemental adjustments (B)4	230	94	324
Other adjustments (C)5	(28)	—	(28)
Final ECL (A + B + C)6	725	582	1,307


HSBC UK Bank plc Annual Report and Accounts 2023	35


Management judgemental adjustments to ECL at 31 December 20221
	Retail	Wholesale2	Total
	£m	£m	£m
Modelled ECL (A)3	760	445	1,205
Corporate lending adjustments	—	128	128
Inflation related adjustments	35	—	35
Other credit judgements	45	(14)	31
Total management judgemental adjustments (B)4	80	114	194
Other adjustments (C)5	50	—	50
Final ECL (A + B + C)6	890	559	1,449

1Management judgemental adjustments presented in the table reflect

increases or (decreases) to allowance for ECL, respectively.

2 The wholesale portfolio corresponds to adjustments to the performing

portfolio (stage 1 and stage 2).

3 (A) refers to probability-weighted allowance for ECL before any

adjustments are applied.

4(B) refers to adjustments that are applied where management believes

allowance for ECL does not sufficiently reflect the credit risk/expected

credit losses of any given portfolio at the reporting date. These can

relate to risks or uncertainties that are not reflected in the model and/

or to any late-breaking events.

5(C) refers to adjustments to allowance for ECL made to address

process limitations and data/model deficiencies.

6As presented within our internal credit risk governance.

At 31 December 2023, total adjustments to the modelled output

were an ECL increase of £94m, comprising £78m relating to

Wholesale portfolios and £16m relating to Retail SME portfolios

(31 December 2022: £114m increase including £67m from Retail

SME).

– The adjustments were primarily driven by the application of

management judgement for the high-risk Real Estate sector,

together with model-deficiency and data related adjustments.

At 31 December 2023, total adjustments to the modelled output

were an ECL increase of £202m (31 December 2022: £130m

increase) for the Retail portfolio.

– Management judgemental adjustments relating to inflation

increased ECL by £30m (31 December 2022: £35m). These

adjustments addressed where increasing inflation and interest

rates result in affordability risks that were not fully captured by the

modelled output.

– Management judgemental adjustments relating to Other credit

judgements increased ECL by £200m (31 December 2022: £45m).

These adjustments were primarily to capture the potential delayed

impact of economic scenarios on unsecured portfolio defaults in

the UK.

Economic scenarios sensitivity analysis of ECL estimates

Management considered the sensitivity of the ECL outcome against

the economic forecasts as part of the ECL governance process by

recalculating the ECL under each scenario described above for

selected portfolios, applying a 100% weighting to each scenario in

turn. The weighting is reflected in both the determination of a

significant increase in credit risk and the measurement of the

resulting ECL.

The ECL calculated for the Upside and Downside scenarios should

not be taken to represent the upper and lower limits of possible ECL

outcomes. The impact of defaults that might occur in the future

under different economic scenarios is captured by recalculating ECL

for loans at the balance sheet date.

There is a particularly high degree of estimation uncertainty in

numbers representing more severe risk scenarios when assigned a

100% weighting.

For wholesale credit risk exposures, the sensitivity analysis excludes

ECL and financial instruments related to defaulted (stage 3) obligors.

The measurement of stage 3 ECL is relatively more sensitive to credit

factors specific to the obligor than future economic scenarios,

therefore the effect of macroeconomic factors are not necessarily the

key consideration when performing individual assessments of ECL

for obligors in default. Loans to defaulted obligors are a small portion

of the overall wholesale lending exposure, even if representing the

majority of the allowance for ECL. Due to the range and specificity of

the credit factors to which the ECL is sensitive, it is not possible to

provide a meaningful alternative sensitivity analysis for a consistent

set of risks across all defaulted obligors.

For retail credit risk exposures, the sensitivity analysis includes ECL

for loans and advances to customers related to defaulted obligors.

This is because the retail ECL for secured mortgage portfolios,

including loans in all stages, is sensitive to macroeconomic variables.

Wholesale and retail sensitivity analysis

The wholesale and retail sensitivity tables present the 100%

weighted results. The results tables exclude small portfolios, and as

such cannot be directly compared to personal and wholesale lending

presented in other credit risk tables. Additionally, in both the

wholesale and retail analysis, the comparative period results for

Downside 2 scenarios are also not directly comparable to the current

period, because they reflect different risks relative to the Consensus

scenarios for the period end.

The wholesale and retail sensitivity analysis is stated inclusive of

management judgemental adjustments, as appropriate to each

scenario.

For both retail and wholesale portfolios, the gross carrying amount of

financial instruments are the same under each scenario. For

exposures with similar risk profile and product characteristics, the

sensitivity impact is therefore largely the result of changes in

macroeconomic assumptions.

Wholesale analysis


IFRS 9 ECL sensitivity to future economic conditions1,2,3
	2023	2022
	£m	£m
ECL of financial instruments subject to significant measurement uncertainty at 31 Dec1
Reported ECL	582	559
Consensus scenarios
Central scenario	542	458
Upside scenario	436	354
Downside scenario	736	606
Downside 2 scenario	1,692	1,604

1 ECL sensitivity includes off-balance sheet financial instruments that

are subject to significant measurement uncertainty.

2 Includes low credit-risk financial instruments such as debt instruments

at FVOCI, which have high carrying amounts but low ECL under all the

above scenarios.

3 Excludes defaulted obligors. For a detailed breakdown of performing

and non-performing wholesale portfolio exposures, see page 43.

Report of the Directors | Risk


36	HSBC UK Bank plc Annual Report and Accounts 2023

Retail analysis


IFRS 9 ECL sensitivity to future economic conditions1
	2023	2022
	£m	£m
ECL of loans and advances to customers at 31 Dec
Reported ECL	685	860
Consensus scenarios
Central scenario	669	799
Upside scenario	586	715
Downside scenario	735	848
Downside 2 scenario	1,046	1,443

1ECL sensitivities exclude portfolios utilising less complex modelling

approaches.

Mortgages reflected the lowest level of ECL sensitivity given the

significant levels of collateral relative to exposure values. Credit cards

and other unsecured lending across stage 1 and stage 2 are more

sensitive to economic forecasts and therefore reflected the highest

level of ECL sensitivity during 2023.

There is limited sensitivity in credit cards and other unsecured lending

in stage 3 as levels of loss on defaulted exposures remain consistent

through various economic conditions. The alternative downside is

from the tail of the economic distribution where ECL is more

sensitive based on historical experience.

The following disclosure provides a reconciliation by stage of the

HSBC UK’s gross carrying/nominal amount and allowances for loans

and advances to banks and customers, including loan commitments

and financial guarantees, Reconciliation by stage of the HSBC UK’s

gross carrying amount and allowances for loans and advances to

banks and customers and Reconciliation by stage of the HSBC UK’s

nominal amount and allowances for loan commitments and financial

guarantees.

Movements are calculated on a quarterly basis and therefore fully

capture stage movements between quarters. If movements were

calculated on a year-to-date basis they would only reflect the opening

and closing position of the financial instrument.

The transfers of financial instruments represent the impact of stage

transfers upon the gross carrying/nominal amount and associated

allowance for ECL. The net remeasurement of ECL arising from stage

transfers represents the increase or decrease due to these transfers,

for example, moving from a 12-month (Stage 1) to a lifetime (Stage 2)

ECL measurement basis. Net remeasurement excludes the

underlying customer risk rating ('CRR')/PD movements of the

financial instruments transferring stage. This is captured, along with

other credit quality movements in the ‘changes in risk parameters –

credit quality’ line item.

Changes in Net new and further lending/repayments includes ‘New

financial assets originated or purchased’, ‘Assets derecognised

(including final repayments)’ and ‘Changes to risk parameters –

further lending/repayment’ represent the impact from volume

movements within the HSBC UK’s lending portfolio.


Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1
(Audited)
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	223,956	(277)	51,572	(978)	4,784	(755)	23	(1)	280,335	(2,011)
Transfers of financial instruments:	(6,383)	(364)	4,508	493	1,875	(129)	—	—	—	—
– transfers from Stage 1 to Stage 2	(48,798)	158	48,798	(158)	—	—	—	—	—	—
– transfers from Stage 2 to Stage 1	42,905	(521)	(42,905)	521	—	—	—	—	—	—
– transfers to Stage 3	(697)	8	(1,891)	174	2,588	(182)	—	—	—	—
– transfers from Stage 3	207	(9)	506	(44)	(713)	53	—	—	—	—
Net remeasurement of ECL arising from transfer of stage	—	334	—	(223)	—	(4)	—	—	—	107
Net new and further lending/ repayments	22,994	(96)	(8,718)	174	(1,745)	138	(23)	—	12,508	216
Changes to risk parameters – credit quality	—	88	—	(254)	—	(623)	—	1	—	(788)
Changes to model used for ECL calculation	—	(2)	—	8	—	1	—	—	—	7
Assets written off	—	—	—	—	(662)	662	—	—	(662)	662
Others	64	—	—	—	—	—	—	—	64	—
At 31 Dec 2023	240,631	(317)	47,362	(780)	4,252	(710)	—	—	292,245	(1,807)
ECL income statement change for the period		324		(295)		(488)		1		(458)
Recoveries										63
Others										(5)
Total ECL income statement change for the period										(400)


HSBC UK Bank plc Annual Report and Accounts 2023	37


Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1 (continued)
(Audited)
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2022	240,386	(348)	22,039	(718)	4,283	(860)	20	(5)	266,728	(1,931)
Transfers of financial instruments:	(34,718)	(175)	32,900	245	1,818	(70)	—	—	—	—
– transfers from Stage 1 to Stage 2	(57,652)	177	57,652	(177)	—	—	—	—	—	—
– transfers from Stage 2 to Stage 1	23,349	(337)	(23,349)	337	—	—	—	—	—	—
– transfers to Stage 3	(638)	3	(2,125)	153	2,763	(156)	—	—	—	—
– transfers from Stage 3	223	(18)	722	(68)	(945)	86	—	—	—	—
Net remeasurement of ECL arising from transfer of stage	—	214	—	(264)	—	(3)	—	—	—	(53)
Net new and further lending/ repayments	14,438	(42)	(3,367)	111	(827)	125	3	—	10,247	194
Changes to risk parameters – credit quality	—	70	—	(214)	—	(449)	—	4	—	(589)
Changes to models used for ECL calculation	—	4	—	(138)	—	12	—	—	—	(122)
Assets written off	—	—	—	—	(490)	490	—	—	(490)	490
Others2	3,850	—	—	—	—	—	—	—	3,850	—
At 31 Dec 2022	223,956	(277)	51,572	(978)	4,784	(755)	23	(1)	280,335	(2,011)
ECL income statement change for the period		246		(505)		(315)		4		(570)
Recoveries										71
Others										22
Total ECL income statement change for the period										(477)

1 The Reconciliation excludes loans and advances to other HSBC Group companies. As at 31 December 2023, these amounted to £0.5bn (2022:

£0.5bn) and were classified as Stage 1 with no ECL.

2 £3.8bn of gross carrying amounts of stage 1 loans and advances to banks, representing the balance maintained with the BoE to support BACS along

with Faster Payments and the cheque-processing Image Clearing System in the UK as at 30 June 2022 when it was reclassified from 'Cash and

balances at central banks'.


Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	160,644	(249)	46,693	(941)	4,526	(723)	23	(1)	211,886	(1,914)
Transfers of financial instruments:	(5,936)	(340)	4,186	467	1,750	(127)	—	—	—	—
– transfers from stage 1 to stage 2	(40,020)	152	40,020	(152)	—	—	—	—	—	—
– transfers from stage 2 to stage 1	34,538	(491)	(34,538)	491	—	—	—	—	—	—
– transfers to stage 3	(622)	8	(1,782)	172	2,404	(180)	—	—	—	—
– transfers from stage 3	168	(9)	486	(44)	(654)	53	—	—	—	—
Net remeasurement of ECL arising from transfer of stage	—	312	—	(205)	—	(4)	—	—	—	103
Net new and further lending/repayments	20,212	(98)	(8,593)	170	(1,703)	115	(23)	—	9,893	187
Changes to risk parameters – credit quality	—	91	—	(254)	—	(589)	—	1	—	(751)
Changes to models used for ECL calculation	—	(2)	—	8	—	1	—	—	—	7
Assets written off	—	—	—	—	(662)	662	—	—	(662)	662
Others	64	—	—	—	—	—	—	—	64	—
At 31 Dec 2023	174,984	(286)	42,286	(755)	3,911	(665)	—	—	221,181	(1,706)
ECL income statement change for the period		303		(281)	—	(477)		1		(454)
Recoveries										63
Others										(5)
Total ECL income statement change for the period										(396)

Report of the Directors | Risk


38	HSBC UK Bank plc Annual Report and Accounts 2023


Reconciliation of changes in gross carrying/nominal amount and allowances for loan commitments and financial guarantees
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	63,312	(28)	4,879	(37)	258	(32)	—	—	68,449	(97)
Transfers of financial instruments:	(447)	(24)	322	26	125	(2)	—	—	—	—
– transfers from stage 1 to stage 2	(8,778)	6	8,778	(6)	—	—	—	—	—	—
– transfers from stage 2 to stage 1	8,367	(30)	(8,367)	30	—	—	—	—	—	—
– transfers to stage 3	(75)	—	(109)	2	184	(2)	—	—	—	—
– transfers from stage 3	39	—	20	—	(59)	—	—	—	—	—
Net remeasurement of ECL arising from transfer of stage	—	22	—	(18)	—	—	—	—	—	4
Net new and further lending/repayments	2,782	2	(125)	4	(42)	23	—	—	2,615	29
Changes to risk parameters – credit quality	—	(3)	—	—	—	(34)	—	—	—	(37)
At 31 Dec 2023	65,647	(31)	5,076	(25)	341	(45)	—	—	71,064	(101)
ECL income statement change for the period		21		(14)	—	(11)		—		(4)
Recoveries										—
Others										—
Total ECL income statement change for the period										(4)

Credit quality of financial instruments

(Audited)

We assess the credit quality of all financial instruments that are

subject to credit risk. The credit quality of financial instruments is a-

point-in-time assessment of PD, whereas Stages 1 and 2 are

determined based on relative deterioration of credit quality since

initial recognition. Accordingly, for non-credit-impaired financial

instruments there is no direct relationship between the credit quality

assessment and Stages 1 and 2, though typically the lower credit

quality bands exhibit a higher proportion in Stage 2.

The five credit quality classifications defined above each encompass

a range of granular internal credit rating grades assigned to wholesale

and personal lending businesses and the external ratings attributed

by external agencies to debt securities, as shown in the table on page

24.


HSBC UK Bank plc Annual Report and Accounts 2023	39


Distribution of financial instruments by credit quality
(Audited)
	Gross carrying/notional amount						Allowance for ECL	Net
	Strong	Good	Satisfactory	Sub- standard	Credit impaired	Total	Allowance for ECL	Net
	£m	£m	£m	£m	£m	£m	£m	£m
In-scope for IFRS 9
Loans and advances to customers held at amortised cost	123,866	43,385	35,581	6,850	3,909	213,591	(1,704)	211,887
– personal	115,161	19,668	7,190	341	955	143,315	(703)	142,612
– corporate and commercial	7,426	20,465	25,845	6,315	2,876	62,927	(949)	61,978
– non-bank financial institutions	1,279	3,252	2,546	194	78	7,349	(52)	7,297
Loans and advances to banks held at amortised cost	7,980	—	—	—	2	7,982	(2)	7,980
Cash and balances at central banks	65,719	—	—	—	—	65,719	—	65,719
Items in the course of collection from other banks	284	—	—	—	—	284	—	284
Reverse repurchase agreements – non-trading	7,686	—	—	—	—	7,686	—	7,686
Financial investments	11,820	—	—	—	—	11,820	(1)	11,819
Other assets	1,214	216	282	6	26	1,744	(9)	1,735
– endorsements and acceptances	3	25	9	—	2	39	(6)	33
– accrued income and other	1,211	191	273	6	24	1,705	(3)	1,702
Debt instruments measured at FVOCI1	15,020	—	—	—	—	15,020	(1)	15,019
Out-of-scope for IFRS 9 ECL
Derivatives	157	12	5	1	1	176	—	176
Total gross carrying amount on balance sheet	233,746	43,613	35,868	6,857	3,938	324,022	(1,717)	322,305
Percentage of total credit quality	72.1	13.5	11.1	2.1	1.2	100.0	—	—
Loan and other credit related commitments	43,062	14,181	11,906	902	330	70,381	(99)	70,282
Financial guarantees	600	224	215	71	11	1,121	(2)	1,119
In-scope: Irrecoverable loan commitments and financial guarantees	43,662	14,405	12,121	973	341	71,502	(101)	71,401
Loan and other credit related commitments	490	914	1,091	268	48	2,811	—	2,811
Performance and other guarantees	367	645	1,163	114	41	2,330	(20)	2,310
Out-of-scope: Revocable loan commitments and Non- financial guarantees	857	1,559	2,254	382	89	5,141	(20)	5,121
Total nominal amount off balance sheet	44,519	15,964	14,375	1,355	430	76,643	(121)	76,522
At 31 Dec 2023	278,265	59,577	50,243	8,212	4,368	400,665	(1,838)	398,827


In-scope for IFRS 9
Loans and advances to customers held at amortised cost	129,503	32,452	34,283	5,273	4,544	206,055	(1,912)	204,143
– personal	120,776	8,640	7,397	973	840	138,626	(872)	137,754
– corporate and commercial	7,696	23,612	25,679	4,272	3,696	64,955	(1,035)	63,920
– non-bank financial institutions	1,031	200	1,207	28	8	2,474	(5)	2,469
Loans and advances to banks held at amortised cost	6,355	—	—	—	4	6,359	(2)	6,357
Cash and balances at central banks	94,407	—	—	—	—	94,407	—	94,407
Items in the course of collection from other banks	353	—	—	—	—	353	—	353
Reverse repurchase agreements – non-trading	7,406	—	—	—	—	7,406	—	7,406
Financial investments	5,160	—	—	—	—	5,160	—	5,160
Other assets	1,457	126	201	3	24	1,811	(5)	1,806
– endorsements and acceptances	—	32	15	3	1	51	(2)	49
– accrued income and other	1,457	94	186	—	23	1,760	(3)	1,757
Debt instruments measured at FVOCI1	12,384	—	—	—	—	12,384	(1)	12,383
Out-of-scope for IFRS 9
Derivatives	508	29	7	1	1	546	—	546
Total gross carrying amount on balance sheet	257,533	32,607	34,491	5,277	4,573	334,481	(1,920)	332,561
Percentage of total credit quality	77.0	9.7	10.3	1.6	1.4	100.0	—	—
Loan and other credit related commitments	42,289	14,141	10,407	550	241	67,628	(91)	67,537
Financial guarantees	642	186	264	38	18	1,148	(6)	1,142
In-scope: Irrecoverable loan commitments and financial guarantees	42,931	14,327	10,671	588	259	68,776	(97)	68,679
Loan and other credit related commitments	740	1,072	923	100	20	2,855	—	2,855
Performance and other guarantees	385	889	1,137	87	32	2,530	(7)	2,523
Out-of-scope: Revocable loan commitments and Non- financial guarantees	1,125	1,961	2,060	187	52	5,385	(7)	5,378
Total nominal amount off balance sheet	44,056	16,288	12,731	775	311	74,161	(104)	74,057
At 31 Dec 2022	301,589	48,895	47,222	6,052	4,884	408,642	(2,024)	406,618

1For the purposes of this disclosure gross carrying amount is defined as the amortised cost of a financial asset, before adjusting for any loss

allowance. As such, the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes

fair value gains and losses.

Report of the Directors | Risk


40	HSBC UK Bank plc Annual Report and Accounts 2023


Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation
(Audited)
	Gross carrying/notional amount						Allowance for ECL	Net
	Strong	Good	Satisfactory	Sub- standard	Credit impaired	Total	Allowance for ECL	Net
	£m	£m	£m	£m	£m	£m	£m	£m
Loans and advances to customers at amortised cost	123,866	43,385	35,581	6,850	3,909	213,591	(1,704)	211,887
– Stage 1	112,334	28,852	24,162	2,048	—	167,396	(286)	167,110
– Stage 2	11,532	14,533	11,419	4,802	—	42,286	(755)	41,531
– Stage 3	—	—	—	—	3,909	3,909	(663)	3,246
– POCI	—	—	—	—	—	—	—	—
Loans and advances to banks at amortised cost	7,980	—	—	—	2	7,982	(2)	7,980
– Stage 1	7,980	—	—	—	—	7,980	—	7,980
– Stage 2	—	—	—	—	—	—	—	—
– Stage 3	—	—	—	—	2	2	(2)	—
– POCI	—	—	—	—	—	—	—	—
Other financial assets measured at amortised cost	86,723	216	282	6	26	87,253	(10)	87,243
– Stage 1	86,695	170	203	5	—	87,073	(7)	87,066
– Stage 2	28	46	79	1	—	154	—	154
– Stage 3	—	—	—	—	26	26	(3)	23
– POCI	—	—	—	—	—	—	—	—
Loan and other credit-related commitments	43,062	14,181	11,906	902	330	70,381	(99)	70,282
– Stage 1	42,606	12,838	9,492	321	—	65,257	(31)	65,226
– Stage 2	456	1,343	2,414	581	—	4,794	(25)	4,769
– Stage 3	—	—	—	—	330	330	(43)	287
– POCI	—	—	—	—	—	—	—	—
Financial guarantees	600	224	215	71	11	1,121	(2)	1,119
– Stage 1	448	206	153	3	—	810	—	810
– Stage 2	152	18	62	68	—	300	—	300
– Stage 3	—	—	—	—	11	11	(2)	9
– POCI	—	—	—	—	—	—	—	—
At 31 Dec 2023	262,231	58,006	47,984	7,829	4,278	380,328	(1,817)	378,511
Debt instruments at FVOCI1	15,020	—	—	—	—	15,020	(1)	15,019
– Stage 1	15,020	—	—	—	—	15,020	(1)	15,019
– Stage 2	—	—	—	—	—	—	—	—
– Stage 3	—	—	—	—	—	—	—	—
– POCI	—	—	—	—	—	—	—	—
At 31 Dec 2023	15,020	—	—	—	—	15,020	(1)	15,019


Loans and advances to customers at amortised cost	129,503	32,452	34,283	5,273	4,544	206,055	(1,912)	204,143
– stage 1	105,529	24,826	23,794	669	—	154,818	(248)	154,570
– stage 2	23,974	7,626	10,489	4,604	—	46,693	(941)	45,752
– stage 3	—	—	—	—	4,521	4,521	(722)	3,799
– POCI	—	—	—	—	23	23	(1)	22
Loans and advances to banks at amortised cost	6,355	—	—	—	4	6,359	(2)	6,357
– stage 1	6,354	—	—	—	—	6,354	—	6,354
– stage 2	1	—	—	—	—	1	—	1
– stage 3	—	—	—	—	4	4	(2)	2
– POCI	—	—	—	—	—	—	—	—
Other financial assets measured at amortised cost	108,783	126	201	3	24	109,137	(5)	109,132
– stage 1	108,737	105	145	—	—	108,987	—	108,987
– stage 2	46	21	56	3	—	126	(1)	125
– stage 3	—	—	—	—	24	24	(4)	20
– POCI	—	—	—	—	—	—	—	—
Loan and other credit-related commitments	42,289	14,141	10,407	550	241	67,628	(91)	67,537
– stage 1	41,874	12,551	8,030	126	—	62,581	(29)	62,552
– stage 2	415	1,590	2,377	424	—	4,806	(37)	4,769
– stage 3	—	—	—	—	241	241	(25)	216
– POCI	—	—	—	—	—	—	—	—
Financial guarantees	642	186	264	38	18	1,148	(6)	1,142
– stage 1	632	182	166	3	—	983	—	983
– stage 2	10	4	98	35	—	147	—	147
– stage 3	—	—	—	—	18	18	(6)	12
– POCI	—	—	—	—	—	—	—	—
At 31 Dec 2022	287,572	46,905	45,155	5,864	4,831	390,327	(2,016)	388,311
Debt instruments at FVOCI1	12,384	—	—	—	—	12,384	(1)	12,383
– stage 1	12,384	—	—	—	—	12,384	(1)	12,383
– stage 2	—	—	—	—	—	—	—	—
– stage 3	—	—	—	—	—	—	—	—
– POCI	—	—	—	—	—	—	—	—
At 31 Dec 2022	12,384	—	—	—	—	12,384	(1)	12,383

1For the purposes of this disclosure, gross carrying amount is defined as the amortised cost of a financial asset before adjusting for any loss

allowance. As such, the gross carrying amount of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes

fair value gains and losses.


HSBC UK Bank plc Annual Report and Accounts 2023	41

Credit-impaired loans

(Audited)

We determine 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; and

– 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 which are considered

defaulted or otherwise credit-impaired.

Forbearance

The following table shows the gross carrying amounts of HSBC UK's

holdings of forborne loans and advances to customers by industry

sector and by stages. Mandatory and general offer loan modifications

that are not borrower-specific, for example market-wide customer

relief programmes, have not been classified as forborne loans.

A summary of our current policies and practices for forbearance is set

out in ‘Credit risk management’ on page 24.


Forborne loans and advances to customers at amortised costs by stage allocation
Performing – Forborne		Non-Performing – Forborne		Total Forborne
	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m
Gross carrying amount
Personal	149	408	—	557
– first lien residential mortgages	24	258	—	282
– credit cards	64	41	—	105
– other personal lending which is unsecured	61	109	—	170
Wholesale	1,010	1,110	—	2,120
– corporate and commercial	1,010	1,099	—	2,109
– non-bank financial institutions	—	11	—	11
At 31 Dec 2023	1,159	1,518	—	2,677
Allowance for ECL
Personal	(19)	(101)	—	(120)
– first lien residential mortgages	—	(34)	—	(34)
– credit cards	(9)	(22)	—	(31)
– other personal lending which is unsecured	(10)	(45)	—	(55)
Wholesale	(40)	(125)	—	(165)
– corporate and commercial	(40)	(125)	—	(165)
At 31 Dec 2023	(59)	(226)	—	(285)


Gross carrying amount
Personal	159	376	—	535
– first lien residential mortgages	23	235	—	258
– credit cards	63	45	—	108
– other personal lending which is unsecured	73	96	—	169
Wholesale	587	1,032	23	1,642
– corporate and commercial	587	1,031	23	1,641
– non-bank financial institutions	—	1	—	1
At 31 Dec 2022	746	1,408	23	2,177
Allowance for ECL
Personal	(31)	(97)	—	(128)
– first lien residential mortgages	(1)	(30)	—	(31)
– credit cards	(13)	(28)	—	(41)
– other personal lending which is unsecured	(17)	(39)	—	(56)
Wholesale	(21)	(115)	(1)	(137)
– corporate and commercial	(21)	(115)	(1)	(137)
At 31 Dec 2022	(52)	(212)	(1)	(265)

Wholesale lending

This section provides further detail on the products in wholesale

loans and advances to customers and banks. Product granularity is

also provided by stage. Additionally, this section provides a

reconciliation of the opening 1 January 2023 to 31 December 2023

closing gross carrying/nominal amounts and the associated allowance

for ECL.

There was a decrease in the Wholesale and retail trade portfolio in

the UK largely from repayments and favourable economic conditions

that led to upgrades to stage 1. The underlying growth in loans and

advances to non-bank financial institutions was mainly driven by the

the acquisition of SVB UK.

Report of the Directors | Risk


42	HSBC UK Bank plc Annual Report and Accounts 2023


Total wholesale lending for loans and advances to banks and customers by stage distribution
	Gross carrying amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Corporate and commercial	46,197	13,854	2,876	—	62,927	(156)	(365)	(428)	—	(949)
– agriculture, forestry and fishing	2,895	1,159	190	—	4,244	(7)	(37)	(24)	—	(68)
– mining and quarrying	508	153	2	—	663	(1)	(4)	—	—	(5)
– manufacturing	4,732	2,472	426	—	7,630	(13)	(62)	(95)	—	(170)
– electricity, gas, steam and air-conditioning supply	727	17	2	—	746	(2)	(1)	(1)	—	(4)
– water supply, sewerage, waste management and remediation	836	145	9	—	990	(2)	(4)	(4)	—	(10)
– real estate and construction	10,055	2,759	564	—	13,378	(27)	(52)	(87)	—	(166)
– wholesale and retail trade, repair of motor vehicles and motorcycles	7,444	2,057	546	—	10,047	(21)	(42)	(84)	—	(147)
– transportation and storage	1,682	364	61	—	2,107	(4)	(9)	(4)	—	(17)
– accommodation and food	3,763	1,943	342	—	6,048	(15)	(37)	(33)	—	(85)
– publishing, audiovisual and broadcasting	2,313	641	110	—	3,064	(25)	(37)	(11)	—	(73)
– professional, scientific and technical activities	3,461	542	169	—	4,172	(13)	(28)	(34)	—	(75)
– administrative and support services	4,339	751	132	—	5,222	(12)	(24)	(13)	—	(49)
– education	522	131	33	—	686	(2)	(5)	(3)	—	(10)
– health and care	1,262	492	106	—	1,860	(5)	(14)	(10)	—	(29)
– arts, entertainment and recreation	874	63	53	—	990	(3)	(3)	(16)	—	(22)
– other services	773	165	131	—	1,069	(4)	(6)	(9)	—	(19)
– activities of households	1	—	—	—	1	—	—	—	—	—
– government	10	—	—	—	10	—	—	—	—	—
Non-bank financial institutions	6,434	837	78	—	7,349	(11)	(6)	(35)	—	(52)
Loans and advances to banks	7,980	—	2	—	7,982	—	—	(2)	—	(2)
At 31 Dec 2023	60,611	14,691	2,956	—	78,258	(167)	(371)	(465)	—	(1,003)


Total wholesale credit-related commitments and financial guarantees by stage distribution
	Nominal amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Corporate and commercial	22,254	3,714	252	—	26,220	(22)	(24)	(43)	—	(89)
Financial	2,966	804	20	—	3,790	(1)	(1)	—	—	(2)
At 31 Dec 2023	25,220	4,518	272	—	30,010	(23)	(25)	(43)	—	(91)


Total wholesale lending for loans and advances to banks and customers by stage distribution (continued)
	Gross carrying amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Corporate and commercial	45,739	15,520	3,673	23	64,955	(134)	(368)	(532)	(1)	(1,035)
– agriculture, forestry and fishing	3,018	889	152	—	4,059	(5)	(26)	(26)	—	(57)
– mining and quarrying	507	140	34	—	681	(1)	(1)	(7)	—	(9)
– manufacturing	6,070	1,444	420	—	7,934	(11)	(24)	(88)	—	(123)
– electricity, gas, steam and air-conditioning supply	942	56	1	—	999	(1)	(1)	—	—	(2)
– water supply, sewerage, waste management and remediation	737	88	8	—	833	(1)	(1)	(2)	—	(4)
– real estate and construction	10,521	2,907	785	—	14,213	(32)	(53)	(146)	—	(231)
– wholesale and retail trade, repair of motor vehicles and motorcycles	5,915	5,137	837	—	11,889	(22)	(121)	(113)	—	(256)
– transportation and storage	1,522	358	80	—	1,960	(4)	(7)	(6)	—	(17)
– accommodation and food	3,840	2,359	341	—	6,540	(12)	(56)	(25)	—	(93)
– publishing, audiovisual and broadcasting	1,870	435	125	23	2,453	(10)	(18)	(9)	(1)	(38)
– professional, scientific and technical activities	3,349	378	132	—	3,859	(11)	(21)	(18)	—	(50)
– administrative and support services	3,880	651	260	—	4,791	(8)	(17)	(34)	—	(59)
– education	670	98	69	—	837	(3)	(3)	(17)	—	(23)
– health and care	1,275	273	122	—	1,670	(4)	(10)	(6)	—	(20)
– arts, entertainment and recreation	700	108	92	—	900	(3)	(4)	(27)	—	(34)
– other services	919	199	215	—	1,333	(6)	(5)	(8)	—	(19)
– activities of households	1	—	—	—	1	—	—	—	—	—
– government	3	—	—	—	3	—	—	—	—	—
Non-bank financial institutions	2,334	132	8	—	2,474	(2)	(2)	(1)	—	(5)
Loans and advances to banks	6,354	1	4	—	6,359	—	—	(2)	—	(2)
At 31 Dec 2022	54,427	15,653	3,685	23	73,788	(136)	(370)	(535)	(1)	(1,042)


HSBC UK Bank plc Annual Report and Accounts 2023	43


Total wholesale credit-related commitments and financial guarantees by stage distribution (continued)
	Nominal amount					Allowance for ECL
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Corporate and commercial	20,527	4,488	172	—	25,187	(20)	(37)	(31)	—	(88)
Financial	1,088	100	—	—	1,188	—	—	—	—	—
At 31 Dec 2022	21,615	4,588	172	—	26,375	(20)	(37)	(31)	—	(88)


Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees1
(Audited)
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		POCI		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	75,262	(156)	20,166	(407)	3,857	(566)	23	(1)	99,308	(1,130)
Transfers of financial instruments	(5,492)	(187)	4,042	233	1,450	(46)	—	—	—	—
– transfers from stage 1 to stage 2	(19,937)	71	19,937	(71)	—	—	—	—	—	—
– transfers from stage 2 to stage 1	14,881	(260)	(14,881)	260	—	—	—	—	—	—
– transfers to stage 3	(598)	7	(1,434)	65	2,032	(72)	—	—	—	—
– transfers from stage 3	162	(5)	420	(21)	(582)	26	—	—	—	—
Net remeasurement of ECL arising from transfer of stage	—	146	—	(135)	—	(2)	—	—	—	9
Net new and further lending/repayments	15,185	(62)	(5,017)	72	(1,657)	128	(23)	—	8,488	138
Change to risk parameters – credit quality	—	69	—	(159)	—	(444)	—	1	—	(533)
Changes to models used for ECL calculation	—	—	—	—	—	—	—	—	—	—
Assets written off	—	—	—	—	(422)	422	—	—	(422)	422
Other	64	—	—	—	—	—	—	—	64	—
At 31 Dec 2023	85,019	(190)	19,191	(396)	3,228	(508)	—	—	107,438	(1,094)
ECL income statement change for the period		153		(222)		(318)		1		(386)
Recoveries										4
Others										(5)
Total ECL income statement change for the period										(387)


At 1 Jan 2022	73,650	(218)	18,378	(364)	3,156	(568)	20	(5)	95,204	(1,155)
Transfers of financial instruments	(6,143)	(113)	4,472	155	1,671	(42)	—	—	—	—
– transfers from stage 1 to stage 2	(20,060)	58	20,060	(58)	—	—	—	—	—	—
– transfers from stage 2 to stage 1	14,289	(160)	(14,289)	160	—	—	—	—	—	—
– transfers to stage 3	(562)	3	(1,711)	66	2,273	(69)	—	—	—	—
– transfers from stage 3	190	(14)	412	(13)	(602)	27	—	—	—	—
Net remeasurement of ECL arising from transfer of stage	—	72	—	(127)	—	(2)	—	—	—	(57)
Net new and further lending/repayments	3,905	(7)	(2,684)	32	(724)	112	3	—	500	137
Change to risk parameters – credit quality	—	105	—	(50)	—	(312)	—	4	—	(253)
Changes to models used for ECL calculation	—	5	—	(53)	—	—	—	—	—	(48)
Assets written off	—	—	—	—	(246)	246	—	—	(246)	246
Other2	3,850	—	—	—	—	—	—	—	3,850	—
At 31 Dec 2022	75,262	(156)	20,166	(407)	3,857	(566)	23	(1)	99,308	(1,130)
ECL income statement change for the period		175		(198)		(202)		4		(221)
Recoveries										7
Others										22
Total ECL income statement change for the period										(192)

1 The reconciliation excludes loans and advances to other HSBC Group companies. As at 31 December 2023, these amounted to £0.5bn (2022: £0.5bn)

and were classified as Stage 1 with no ECL.

2 £3.8bn of gross carrying amounts of stage 1 loans and advances to banks, representing the balance maintained with the BoE to support BACS along

with Faster Payments and the cheque-processing Image Clearing System in the UK as at 30 June 2022 when it was reclassified from 'Cash and

balances at central banks'. Comparatives have not been restated.

Report of the Directors | Risk


44	HSBC UK Bank plc Annual Report and Accounts 2023


Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost
		Gross carrying amount					Allowance for ECL
	Basel one-year PD range	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total	ECL coverage	Mapped external rating
	%	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	%
Corporate and commercial 1		46,197	13,854	2,876	—	62,927	(156)	(365)	(428)	—	(949)	1.5
– CRR 1	0.000 to 0.053	392	1	—	—	393	—	(1)	—	—	(1)	0.3	AA- and above
– CRR 2	0.054 to 0.169	6,871	162	—	—	7,033	(5)	(2)	—	—	(7)	0.1	A+ to A-
– CRR 3	0.170 to 0.740	17,704	2,761	—	—	20,465	(26)	(40)	—	—	(66)	0.3	BBB+ to BBB-
– CRR 4	0.741 to 1.927	12,402	3,056	—	—	15,458	(44)	(42)	—	—	(86)	0.6	BB+ to BB-
– CRR 5	1.928 to 4.914	6,984	3,403	—	—	10,387	(59)	(93)	—	—	(152)	1.5	BB- to B
– CRR 6	4.915 to 8.860	844	1,644	—	—	2,488	(14)	(60)	—	—	(74)	3.0	B-
– CRR 7	8.861 to 15.000	343	1,903	—	—	2,246	(4)	(75)	—	—	(79)	3.5	CCC+
– CRR 8	15.001 to 99.999	657	924	—	—	1,581	(4)	(52)	—	—	(56)	3.5	CCC to C
– CRR 9/10	100.000	—	—	2,876	—	2,876	—	—	(428)	—	(428)	14.9	D
Non-bank financial institutions		6,434	837	78	—	7,349	(11)	(6)	(35)	—	(52)	0.7
– CRR 1	0.000 to 0.053	346	—	—	—	346	—	—	—	—	—	—	AA- and above
– CRR 2	0.054 to 0.169	887	46	—	—	933	(1)	—	—	—	(1)	0.1	A+ to A-
– CRR 3	0.170 to 0.740	3,056	196	—	—	3,252	(1)	(1)	—	—	(2)	0.1	BBB+ to BBB-
– CRR 4	0.741 to 1.927	1,874	449	—	—	2,323	(3)	(1)	—	—	(4)	0.2	BB+ to BB-
– CRR 5	1.928 to 4.914	128	95	—	—	223	(1)	(4)	—	—	(5)	2.2	BB- to B
– CRR 6	4.915 to 8.860	130	46	—	—	176	(5)	—	—	—	(5)	2.8	B-
– CRR 7	8.861 to 15.000	8	2	—	—	10	—	—	—	—	—	—	CCC+
– CRR 8	15.001 to 99.999	5	3	—	—	8	—	—	—	—	—	—	CCC to C
– CRR 9/10	100.000	—	—	78	—	78	—	—	(35)	—	(35)	44.9	D
Banks		7,980	—	2	—	7,982	—	—	(2)	—	(2)	—
– CRR 1	0.000 to 0.053	7,913	—	—	—	7,913	—	—	—	—	—	—	AA- and above
– CRR 2	0.054 to 0.169	67	—	—	—	67	—	—	—	—	—	—	A+ to A-
– CRR 3	0.170 to 0.740	—	—	—	—	—	—	—	—	—	—	—	BBB+ to BBB-
– CRR 4	0.741 to 1.927	—	—	—	—	—	—	—	—	—	—	—	BB+ to BB-
– CRR 5	1.928 to 4.914	—	—	—	—	—	—	—	—	—	—	—	BB- to B
– CRR 6	4.915 to 8.860	—	—	—	—	—	—	—	—	—	—	—	B-
– CRR 7	8.861 to 15.000	—	—	—	—	—	—	—	—	—	—	—	CCC+
– CRR 8	15.001 to 99.999	—	—	—	—	—	—	—	—	—	—	—	CCC to C
– CRR 9/10	100.000	—	—	2	—	2	—	—	(2)	—	(2)	100.0	D
At 31 Dec 2023		60,611	14,691	2,956	—	78,258	(167)	(371)	(465)	—	(1,003)	1.3

1 Corporate and commercial lending reported in CRR8 for stage 1 includes £613m related to the UK Bounce Back Loans Scheme with immaterial

allowance for ECL.


HSBC UK Bank plc Annual Report and Accounts 2023	45


Wholesale lending – credit risk profile by obligor grade for loan and other credit-related commitments and financial guarantees
		Gross carrying amount					Allowance for ECL						Mapped external rating
	Basel one-year PD range	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total	ECL coverage
	%	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	%
Loan and other credit- related commitment		24,714	4,226	261	—	29,201	(23)	(25)	(41)	—	(89)	0.3
– CRR 1	0.000 to 0.053	840	103	—	—	943	—	—	—	—	—	—	AA- and above
– CRR 2	0.054 to 0.169	5,920	304	—	—	6,224	(1)	(1)	—	—	(2)	—	A+ to A-
– CRR 3	0.170 to 0.740	10,210	1,320	—	—	11,530	(4)	(5)	—	—	(9)	0.1	BBB+ to BBB-
– CRR 4	0.741 to 1.927	5,359	893	—	—	6,252	(5)	(3)	—	—	(8)	0.1	BB+ to BB-
– CRR 5	1.928 to 4.914	2,102	1,062	—	—	3,164	(11)	(9)	—	—	(20)	0.6	BB- to B
– CRR 6	4.915 to 8.860	254	204	—	—	458	(2)	(3)	—	—	(5)	1.1	B-
– CRR 7	8.861 to 15.000	20	205	—	—	225	—	(3)	—	—	(3)	1.3	CCC+
– CRR 8	15.001 to 99.999	9	135	—	—	144	—	(1)	—	—	(1)	0.7	CCC to C
– CRR 9/10	100.000	—	—	261	—	261	—	—	(41)	—	(41)	15.7	D
Financial guarantees		506	292	11	—	809	—	—	(2)	—	(2)
– CRR 1	0.000 to 0.053	55	—	—	—	55	—	—	—	—	—	—	AA- and above
– CRR 2	0.054 to 0.169	103	152	—	—	255	—	—	—	—	—	—	A+ to A-
– CRR 3	0.170 to 0.740	193	18	—	—	211	—	—	—	—	—	—	BBB+ to BBB-
– CRR 4	0.741 to 1.927	89	15	—	—	104	—	—	—	—	—	—	BB+ to BB-
– CRR 5	1.928 to 4.914	62	39	—	—	101	—	—	—	—	—	—	BB- to B
– CRR 6	4.915 to 8.860	3	56	—	—	59	—	—	—	—	—	—	B-
– CRR 7	8.861 to 15.000	1	10	—	—	11	—	—	—	—	—	—	CCC+
– CRR 8	15.001 to 99.999	—	2	—	—	2	—	—	—	—	—	—	CCC to C
– CRR 9/10	100.000	—	—	11	—	11	—	—	(2)	—	(2)	18.2	D
At 31 Dec 2023		25,220	4,518	272	—	30,010	(23)	(25)	(43)	—	(91)	0.3

Commercial real estate

Commercial real estate lending includes the financing of corporate,

institutional and high net worth customers who are investing primarily

in income-producing assets and, to a lesser extent, in their

construction and development. Our exposure mainly comprises the

financing of investment assets, the redevelopment of existing stock

and the augmentation of both commercial and residential markets to

support economic growth.


Commercial real estate lending
	2023	2022
	£m	£m
Gross loans and advances
Stage 1	8,080	9,471
Stage 2	2,558	2,293
Stage 3	348	583
POCI	—	—
At 31 Dec	10,986	12,347
– of which: forborne loans1	361	178
Allowance for ECL	(116)	(179)

Refinance risk in commercial real estate

Commercial real estate lending tends to require the repayment of a

significant proportion of the principal at maturity. Typically, a

customer will arrange repayment through the acquisition of a new

loan to settle the existing debt. Refinance risk is the risk that a

customer, being unable to repay the debt on maturity, fails to

refinance it at commercial rates. We monitor our commercial real

estate portfolio closely, assessing indicators for signs of potential

issues with refinancing.


Commercial real estate gross loans and advances maturity analysis
	2023	2022
	£m	£m
< 1 year	2,784	6,903
1-2 years	3,540	2,920
2-5 years	4,244	1,979
> 5 years	418	545
At 31 Dec	10,986	12,347

Collateral and other credit enhancement held

(Audited)

Although collateral can be an important mitigants of credit risk, it is

HSBC UK's practice to lend on the basis of the customer’s ability to

meet their obligations out of their cash flow resources rather than

placing primarily reliance on the collateral and other credit risk

enhancements. Depending on the customer’s standing and the type

of product, facilities may be provided unsecured.

For other lending, a charge over collateral is obtained and considered

in determining the credit decision and pricing. In the event of a

default, HSBC UK may utilise the collateral as a source of repayment.

Depending on its form, collateral can have a significant financial effect

in mitigating exposure to credit risk. Where there is sufficient

collateral, an expected credit loss is not recognised. This is the case

for reverse repurchase agreements and for certain loans and

advances to customers where the loan to value ('LTV ') is very low.

Mitigants may include a charge on borrowers' specific assets, such

as real estate or financial instruments. Risk may also be managed by

employing other types of collateral and credit risk enhancements,

such as second charges, other liens and unsupported guarantees.

Report of the Directors | Risk


46	HSBC UK Bank plc Annual Report and Accounts 2023

Collateral on loans and advances

Collateral held is analysed separately for commercial real estate and

for other corporate and commercial and financial (non-bank) lending.

The following tables include off-balance sheet loan commitments,

primarily undrawn credit lines.

The collateral measured in the following tables consists of fixed first

charges on real estate, and charges over cash and marketable

financial instruments. The values in the tables represent the expected

market value on an open market basis. No adjustment has been

made to the collateral for any expected costs of recovery. Marketable

securities are measured at their fair value.

Other types of collateral such as unsupported guarantees and floating

charges over the assets of a customer’s business

are not measured in the following tables. While such mitigants have

value, often providing rights in insolvency, their assignable value is

not sufficiently certain and they are therefore assigned no value for

disclosure purposes.

The LTV ratios presented are calculated by directly associating loans

and advances with the collateral that individually and uniquely

supports each facility. When collateral assets are shared by multiple

loans and advances, whether specifically or, more generally, by way

of an all monies charge, the collateral value is pro-rated across

the loans and advances protected by the collateral.

For credit-impaired loans, the collateral values cannot be directly

compared with impairment allowances recognised. The LTV figures

use open market values with no adjustments. Impairment allowances

are calculated on a different basis, by considering other cash flows

and adjusting collateral values for costs of realising collateral as

explained further on page 88.

Commercial real estate loans and advances

The value of commercial real estate collateral is determined by using

a combination of external and internal valuations and physical

inspections.

Facilities of a working capital nature are generally not secured by a

first fixed charge, and are therefore disclosed as not collateralised.


Wholesale lending: commercial real estate loans and advances including loan commitments by level of collateral (by stage)
(Audited)
	Gross carrying/nominal amount					ECL coverage
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	%	%	%	%	%
Non Collateralised	3,511	970	77	—	4,558	0.4	2.0	12.3	—	0.9
Fully collateralised by LTV ratio	6,981	1,970	210	—	9,161	0.1	1.3	9.4	—	0.6
– less than 50%	2,287	397	40	—	2,724	0.2	1.9	21.6	—	0.7
– 51% to 75%	3,715	1,113	59	—	4,887	0.1	1.1	1.5	—	0.3
– 76% to 90%	496	229	63	—	788	0.1	1.3	14.8	—	1.6
– 91% to 100%	483	231	48	—	762	0.1	1.6	1.9	—	0.7
Partially collateralised (A): LTV > 100%	1,239	187	64	—	1,490	0.1	1.1	34.4	—	1.7
– collateral value on A	411	134	49	—	594
Total at 31 Dec 2023	11,731	3,127	351	—	15,209	0.2	1.5	14.6	—	0.8

Non Collateralised	4,151	1,855	245	—	6,251	0.4	1.5	35.2	—	2.1
Fully collateralised by LTV ratio	7,769	1,624	287	—	9,680	0.1	1.0	5.6	—	0.4
– less than 50%	2,305	515	44	—	2,864	0.2	1.0	4.5	—	0.4
– 51% to 75%	4,753	981	220	—	5,954	0.1	0.9	0.5	—	0.3
– 76% to 90%	375	115	9	—	499	0.2	1.5	20.7	—	0.8
– 91% to 100%	336	13	14	—	363	0.2	0.4	78.2	—	3.3
Partially collateralised (A): LTV > 100%	1,588	139	64	—	1,791	0.1	1.0	29.6	—	1.3
– collateral value on A	920	112	34	—	1,066				—
Total at 31 Dec 2022	13,508	3,618	596	—	17,722	0.2	1.2	20.3	—	1.1

Other corporate, commercial and financial (non-bank) loans and advances

(Audited)

Other corporate, commercial and financial (non-bank) loans are

analysed separately in the following table. For financing activities in

other corporate and commercial lending that are not predominantly

commercial real estate-oriented, collateral value is not strongly

correlated to principal repayment performance.

Collateral values are generally refreshed when an obligor’s general

credit performance deteriorates and HSBC UK have to assess the

likely performance of secondary sources of repayment should it prove

necessary to rely on them.


Wholesale lending: other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral (by stage)
	Gross carrying/nominal amount					ECL coverage
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	%	%	%	%	%
Non Collateralised	50,581	10,097	2,062	—	62,740	0.3	2.5	18.5	—	1.2
Fully collateralised by LTV ratio	12,571	4,468	898	—	17,937	0.2	1.7	3.4	—	0.7
– less than 50%	4,858	1,716	465	—	7,039	0.2	1.3	1.1	—	0.5
– 51% to 75%	4,324	1,750	335	—	6,409	0.2	1.8	3.6	—	0.8
– 76% to 90%	1,736	635	81	—	2,452	0.2	2.5	13.9	—	1.2
– 91% to 100%	1,653	367	17	—	2,037	0.2	2.1	14.5	—	0.6
Partially collateralised (A): LTV > 100%	4,739	1,338	227	—	6,304	0.2	1.8	17.9	—	1.2
– collateral value on A	2,602	847	135	—	3,584
Total at 31 Dec 2023	67,891	15,903	3,187	—	86,981	0.2	2.2	14.2	—	1.1


HSBC UK Bank plc Annual Report and Accounts 2023	47


Wholesale lending: other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral (by stage) (continued)
	Gross carrying/nominal amount					ECL coverage
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	£m	£m	£m	£m	£m	%	%	%	%	%
Non Collateralised	41,567	9,798	2,466	23	53,854	0.3	2.8	14.1	2.8	1.4
Fully collateralised by LTV ratio	11,291	5,079	571	—	16,941	0.1	1.3	4.3	—	0.6
– less than 50%	4,108	2,160	143	—	6,411	0.1	1.1	3.5	—	0.5
– 51% to 75%	4,157	2,121	276	—	6,554	0.1	1.4	6.0	—	0.8
– 76% to 90%	1,334	478	83	—	1,895	0.1	1.9	0.9	—	0.6
– 91% to 100%	1,692	320	69	—	2,081	0.1	1.3	3.7	—	0.4
Partially collateralised (A): LTV > 100%	5,210	1,876	245	—	7,331	0.1	1.2	25.7	—	1.2
– collateral value on A	2,803	981	128	—	3,912				—
Total at 31 Dec 2022	58,068	16,753	3,282	23	78,126	0.2	2.2	13.3	2.8	1.2

Other credit risk exposures

(Audited)

In addition to collateralised lending, other credit enhancements are

employed and methods used to mitigate credit risk arising from

financial assets. These are described in more detail below:

– Some securities issued by governments, banks and other financial

institutions benefit from additional credit enhancement provided

by government guarantees that cover the assets;

– Debt securities issued by banks and financial institutions include

asset-backed securities and similar instruments which are

supported by underlying pools of financial assets; and

– HSBC UK’s maximum exposure to credit risk includes financial

guarantees and similar contracts granted, as well as loan and

other credit-related commitments. Depending on the terms of the

arrangement, we may use additional credit mitigation if a

guarantee is called upon or a loan commitment is drawn and

subsequently defaults.

Personal lending

We provide a broad range of secured and unsecured personal lending

products to meet customer needs. Personal lending includes

advances to customers for asset purchases such as residential

property where the loans are secured by the assets being acquired.

We also offer unsecured lending products such as overdrafts, credit

cards and personal loans.

The following table shows the levels of personal lending products in the various portfolios.


Total personal lending for loans and advances to customers at amortised costs by stage distribution
	Gross carrying amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
By portfolio
First lien residential mortgages	103,352	25,346	594	129,292	(19)	(82)	(60)	(161)
– of which: interest only (including offset)	16,181	1,989	69	18,239	(3)	(20)	(9)	(32)
Other personal lending	11,413	2,249	361	14,023	(100)	(302)	(140)	(542)
– other	6,417	1,130	223	7,770	(57)	(135)	(86)	(278)
– credit cards	4,996	1,119	138	6,253	(43)	(167)	(54)	(264)
At 31 Dec 2023	114,765	27,595	955	143,315	(119)	(384)	(200)	(703)


Total personal credit-related commitments and financial guarantees by stage distribution
	Nominal amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
At 31 Dec 2023	40,847	576	69	41,492	(8)	—	(2)	(10)


Total personal lending for loans and advances to customers at amortised costs by stage distribution (continued)
	Gross carrying amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
By portfolio
First lien residential mortgages	96,757	28,200	546	125,503	(10)	(113)	(62)	(185)
– of which: interest only (including offset)	14,979	3,637	90	18,706	(2)	(37)	(10)	(49)
Other personal lending	9,988	2,841	294	13,123	(102)	(458)	(127)	(687)
– other	5,892	1,591	198	7,681	(56)	(187)	(73)	(316)
– credit cards	4,096	1,250	96	5,442	(46)	(271)	(54)	(371)
At 31 Dec 2022	106,745	31,041	840	138,626	(112)	(571)	(189)	(872)


Total personal credit-related commitments and financial guarantees by stage distribution (continued)
	Nominal amount				Allowance for ECL
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
At 31 Dec 2022	41,949	365	87	42,401	(9)	—	—	(9)

Report of the Directors | Risk


48	HSBC UK Bank plc Annual Report and Accounts 2023

Mortgage lending

We offer a wide range of mortgage products designed to meet

customer needs, including capital repayment, interest-only and offset

mortgages. Internal credit policies prescribe the range of acceptable

residential property LTV thresholds with the maximum upper limit for

new loans set between 50% and 95%, depending on the product

type and loan amount.

We have continued to see net growth in our Mortgage business of

£3.8bn in 2023. We have maintained strong presence in the market

through 2023 while, where appropriate, strengthening our

affordability controls and credit policy to reflect the more uncertain

economic outlook.

The quality of our mortgage book remained strong, with low levels of

impairment allowances. The average LTV ratio on new lending was

65%, compared with an estimated 53% for the overall mortgage

portfolio.

Exposure to interest-only mortgage loans

The following information is presented for the bank’s HSBC branded

interest-only mortgage loans. This excludes offset mortgages in first

direct and private banking mortgages.

At the end of 2023, the average LTV ratio of the interest-only

mortgage loans was 44%, and 97% had a LTV ratio of 75% or less.

Of the interest-only mortgage loans that expired in 2021, 82% were

repaid within 12 months of expiry with a total of 96% being repaid

within 24 months of expiry. For those expiring during 2022, 92%

were repaid within 12 months of expiry.

The exposure of interest-only mortgage loans at the end of 2023 is

£12bn and the maturity profile is as follows:


HSBC interest-only mortgage loans
	£m
Expired interest-only mortgage loans1	110
Interest-only mortgage loans by maturity
– 2024	110
– 2025	190
– 2026	247
– 2027–2031	2,631
– post 2031	8,634
At 31 Dec 2023	11,922

1Includes interest-only mortgages which have reached their contractual

maturity date, but were unsettled at the end of 2023.

Exposure to offset mortgage in first direct

The offset mortgage in first direct is a flexible way for our customers

to take control of their finances. It works by grouping together the

customer’s mortgage, savings and current accounts to off-set their

credit and debit balances against their mortgage exposure which at

the end of 2023 was £3.9bn with an average LTV ratio of 29%.


Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers including loan commitments and financial guarantees
(Audited)
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	148,694	(121)	31,406	(571)	927	(189)	181,027	(881)
Transfers of financial instruments	(891)	(177)	466	260	425	(83)	—	—
– transfers from stage 1 to stage 2	(28,861)	87	28,861	(87)	—	—	—	—
– transfers from stage 2 to stage 1	28,024	(261)	(28,024)	261	—	—	—	—
– transfers to stage 3	(99)	1	(457)	109	556	(110)	—	—
– transfers from stage 3	45	(4)	86	(23)	(131)	27	—	—
Net remeasurement of ECL arising from transfer of stage	—	188	—	(88)	—	(2)	—	98
Net new and further lending/repayments	7,809	(34)	(3,701)	102	(88)	10	4,020	78
Change to risk parameters – credit quality	—	19	—	(95)	—	(179)	—	(255)
Changes to models used for ECL calculation	—	(2)	—	8	—	1	—	7
Assets written off	—	—	—	—	(240)	240	(240)	240
At 31 Dec 2023	155,612	(127)	28,171	(384)	1,024	(202)	184,807	(713)
ECL income statement change for the period		171		(73)		(170)		(72)
Recoveries								59
Others								—
Total ECL income statement change for the period								(13)


At 1 Jan 2022	166,739	(130)	3,657	(354)	1,128	(292)	171,524	(776)
Transfers of financial instruments	(28,575)	(62)	28,428	90	147	(28)	—	—
– transfers from stage 1 to stage 2	(37,592)	119	37,592	(119)	—	—	—	—
– transfers from stage 2 to stage 1	9,060	(177)	(9,060)	177	—	—	—	—
– transfers to stage 3	(76)	—	(414)	87	490	(87)	—	—
– transfers from stage 3	33	(4)	310	(55)	(343)	59	—	—
Net remeasurement of ECL arising from transfer of stage	—	142	—	(137)	—	(1)	—	4
Net new and further lending/repayments	10,530	(35)	(679)	79	(104)	13	9,747	57
Change to risk parameters – credit quality	—	(35)	—	(164)	—	(137)	—	(336)
Changes to models used for ECL calculation	—	(1)	—	(85)	—	12	—	(74)
Assets written off	—	—	—	—	(244)	244	(244)	244
At 31 Dec 2022	148,694	(121)	31,406	(571)	927	(189)	181,027	(881)
ECL income statement change for the period		71		(307)		(113)		(349)
Recoveries								64
Others								—
Total ECL income statement change for the period								(285)


HSBC UK Bank plc Annual Report and Accounts 2023	49


First lien residential mortgages – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers including loan commitments and financial guarantees
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	109,157	(10)	28,285	(113)	561	(62)	138,003	(185)
Transfers of financial instruments	(435)	(44)	246	58	189	(14)	—	—
– transfers from stage 1 to stage 2	(25,875)	7	25,875	(7)	—	—	—	—
– transfers from stage 2 to stage 1	25,462	(50)	(25,462)	50	—	—	—	—
– transfers to stage 3	(42)	—	(203)	17	245	(17)	—	—
– transfers from stage 3	20	(1)	36	(2)	(56)	3	—	—
Net remeasurement of ECL arising from transfer of stage	—	19	—	(10)	—	—	—	9
Net new and further lending/repayments	4,581	(1)	(3,021)	12	(144)	3	1,416	14
Change to risk parameters – credit quality	—	19	—	(52)	—	12	—	(21)
Changes to models used for ECL calculation	—	(2)	—	23	—	—	—	21
Assets written off	—	—	—	—	(1)	1	(1)	1
At 31 Dec 2023	113,303	(19)	25,510	(82)	605	(60)	139,418	(161)
ECL income statement change for the period		35		(27)		15		23
Recoveries								—
Others								—
Total ECL income statement change for the period								23


Credit cards – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers including loan commitments and financial guarantees
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	27,303	(53)	1,387	(271)	138	(54)	28,828	(378)
Transfers of financial instruments	(246)	(80)	121	110	125	(30)	—	—
– transfers from stage 1 to stage 2	(1,449)	33	1,449	(33)	—	—	—	—
– transfers from stage 2 to stage 1	1,231	(111)	(1,231)	111	—	—	—	—
– transfers to stage 3	(33)	—	(109)	39	142	(39)	—	—
– transfers from stage 3	5	(2)	12	(7)	(17)	9	—	—
Net remeasurement of ECL arising from transfer of stage	—	69	—	(53)	—	(2)	—	14
Net new and further lending/repayments	1,988	(13)	(60)	60	13	2	1,941	49
Change to risk parameters – credit quality	—	28	—	(12)	—	(78)	—	(62)
Changes to models used for ECL calculation	—	—	—	—	—	1	—	1
Assets written off	—	—	—	—	(106)	106	(106)	106
At 31 Dec 2023	29,045	(49)	1,448	(166)	170	(55)	30,663	(270)
ECL income statement change for the period		84		(5)		(77)		2
Recoveries								30
Others								(1)
Total ECL income statement change for the period								31

Report of the Directors | Risk


50	HSBC UK Bank plc Annual Report and Accounts 2023


Other personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers including loan commitments and financial guarantees
	Non-credit impaired				Credit impaired
	Stage 1		Stage 2		Stage 3		Total
	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL	Gross carrying/ nominal amount	Allow- ance for ECL
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	12,234	(58)	1,734	(187)	228	(73)	14,196	(318)
Transfers of financial instruments	(210)	(53)	99	92	111	(39)	—	—
– transfers from stage 1 to stage 2	(1,537)	47	1,537	(47)	—	—	—	—
– transfers from stage 2 to stage 1	1,331	(100)	(1,331)	100	—	—	—	—
– transfers to stage 3	(24)	1	(145)	53	169	(54)	—	—
– transfers from stage 3	20	(1)	38	(14)	(58)	15	—	—
Net remeasurement of ECL arising from transfer of stage	—	100	—	(25)	—	—	—	75
Net new and further lending/repayments	1,240	(20)	(620)	30	43	5	663	15
Change to risk parameters – credit quality	—	(28)	—	(31)	—	(113)	—	(172)
Changes to models used for ECL calculation	—	—	—	(15)	—	—	—	(15)
Assets written off	—	—	—	—	(133)	133	(133)	133
At 31 Dec 2023	13,264	(59)	1,213	(136)	249	(87)	14,726	(282)
ECL income statement change for the period		52		(41)		(108)		(97)
Recoveries								29
Others								1
Total ECL income statement change for the period								(67)


Personal lending – credit risk profile by internal PD band for loans and advances to customers at amortised cost
		Gross carrying amount				Allowance for ECL
	PD range1	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	ECL coverage
	%	£m	£m	£m	£m	£m	£m	£m	£m	%
First lien residential mortgages2		103,352	25,346	594	129,292	(19)	(82)	(60)	(161)	0.1
– Band 1	0.000 to 0.250	67,862	1,923	—	69,785	(9)	(6)	—	(15)	—
– Band 2	0.251 to 0.500	31,004	9,400	—	40,404	(7)	(13)	—	(20)	—
– Band 3	0.501 to 1.500	4,051	11,546	—	15,597	(2)	(35)	—	(37)	0.2
– Band 4	1.501 to 5.000	310	1,920	—	2,230	—	(17)	—	(17)	0.8
– Band 5	5.001 to 20.000	70	390	—	460	—	(5)	—	(5)	1.1
– Band 6	20.001 to 99.999	55	167	—	222	(1)	(6)	—	(7)	3.2
– Band 7	100.00	—	—	594	594	—	—	(60)	(60)	10.1
Credit cards		4,996	1,119	138	6,253	(43)	(167)	(54)	(264)	4.2
– Band 1	0.000 to 0.250	2,198	—	—	2,198	(3)	—	—	(3)	0.1
– Band 2	0.251 to 0.500	604	—	—	604	(3)	—	—	(3)	0.5
– Band 3	0.501 to 1.500	1,312	12	—	1,324	(16)	—	—	(16)	1.2
– Band 4	1.501 to 5.000	882	536	—	1,418	(21)	(35)	—	(56)	3.9
– Band 5	5.001 to 20.000	—	533	—	533	—	(112)	—	(112)	21.0
– Band 6	20.001 to 99.999	—	38	—	38	—	(20)	—	(20)	52.6
– Band 7	100.00	—	—	138	138	—	—	(54)	(54)	39.1
Other personal lending (excluding credit cards)		6,417	1,130	223	7,770	(57)	(135)	(86)	(278)	3.6
– Band 1	0.000 to 0.250	1,308	—	—	1,308	(4)	—	—	(4)	0.3
– Band 2	0.251 to 0.500	863	—	—	863	(2)	—	—	(2)	0.2
– Band 3	0.501 to 1.500	2,729	17	—	2,746	(22)	—	—	(22)	0.8
– Band 4	1.501 to 5.000	1,431	429	—	1,860	(26)	(19)	—	(45)	2.4
– Band 5	5.001 to 20.000	81	608	—	689	(3)	(79)	—	(82)	11.9
– Band 6	20.001 to 99.999	5	76	—	81	—	(37)	—	(37)	45.7
– Band 7	100.00	—	—	223	223	—	—	(86)	(86)	38.6
At 31 Dec 2023		114,765	27,595	955	143,315	(119)	(384)	(200)	(703)	0.5

1 12-month point in time adjusted for multiple economic scenarios.

2 PD bands do not consider the impact of any management judgemental adjustments on stage or allowances for ECL including the impact of new

models not yet formally implemented. For a list of management judgemental adjustments see pages 35 to 36.


HSBC UK Bank plc Annual Report and Accounts 2023	51


Personal lending – credit risk profile by internal PD band for loan and other credit-related commitments and financial guarantees
		Nominal amount				Allowance for ECL
	PD range1	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	ECL coverage
	%	£m	£m	£m	£m	£m	£m	£m	£m	%
Loan and other credit- related commitments		40,543	568	69	41,180	(8)	—	(2)	(10)	—
– Band 1	0.000 to 0.250	33,636	48	—	33,684	(8)	—	—	(8)	—
– Band 2	0.251 to 0.500	2,209	1	—	2,210	—	—	—	—	—
– Band 3	0.501 to 1.500	2,628	24	—	2,652	—	—	—	—	—
– Band 4	1.501 to 5.000	1,902	251	—	2,153	—	—	—	—	—
– Band 5	5.001 to 20.000	130	208	—	338	—	—	—	—	—
– Band 6	20.001 to 99.999	38	36	—	74	—	—	—	—	—
– Band 7	100.000	—	—	69	69	—	—	(2)	(2)	2.9
Financial guarantees		304	8	—	312	—	—	—	—	—
– Band 1	0.000 to 0.250	—	—	—	—	—	—	—	—	—
– Band 2	0.251 to 0.500	289	—	—	289	—	—	—	—	—
– Band 3	0.501 to 1.500	14	—	—	14	—	—	—	—	—
– Band 4	1.501 to 5.000	—	—	—	—	—	—	—	—	—
– Band 5	5.001 to 20.000	1	8	—	9	—	—	—	—	—
– Band 6	20.001 to 99.999	—	—	—	—	—	—	—	—	—
– Band 7	100.000	—	—	—	—	—	—	—	—	—
At 31 Dec 2023		40,847	576	69	41,492	(8)	—	(2)	(10)	—

1 12-month point in time adjusted for multiple economic scenarios.

Collateral on loans and advances

(Audited)

The following table provides a quantification of the value of fixed

charges HSBC UK holds over specific assets where it has a history of

enforcing, and are able to enforce, collateral in satisfying a debt in the

event of the borrower failing to meet its contractual obligations, and

where the collateral is cash or can be realised by sale in an

established market. The collateral valuation excludes any adjustments

for obtaining and selling the collateral and, in particular, loans shown

as not collateralised or partially collateralised may also benefit from

other forms of credit mitigants.


Personal lending: residential mortgage loans including loan commitments by level of collateral
(Audited)
	Gross carrying/nominal amount				ECL coverage
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m	%	%	%	%
Fully collateralised by LTV ratio	113,064	25,495	585	139,144	—	0.3	9.6	0.1
– less than 50%	46,502	13,470	350	60,322	—	0.2	8.0	0.1
– 51% to 70%	38,356	8,489	161	47,006	—	0.4	9.3	0.1
– 71% to 80%	15,734	2,472	48	18,254	—	0.6	12.5	0.1
– 81% to 90%	10,050	862	14	10,926	—	0.8	14.3	0.1
– 91% to 100%	2,422	202	12	2,636	—	1.0	41.7	0.3
Partially collateralised (A): LTV > 100%	239	15	20	274	—	—	15.0	1.5
– collateral value on A	188	11	17	216
Total at 31 Dec 2023	113,303	25,510	605	139,418	—	0.3	10.1	0.1

Fully collateralised by LTV ratio	108,895	28,245	551	137,691	—	0.4	11.0	0.1
– less than 50%	57,630	8,471	362	66,463	—	0.6	9.2	0.1
– 51% to 70%	35,358	12,232	131	47,721	—	0.4	11.5	0.1
– 71% to 80%	10,468	4,856	27	15,351	—	0.3	19.7	0.1
– 81% to 90%	4,853	2,384	9	7,246	—	0.2	24.5	0.1
– 91% to 100%	586	302	22	910	—	0.2	22.5	0.1
Partially collateralised (A): LTV > 100%	263	40	10	313	—	0.3	6.2	1.6
– collateral value on A	191	31	3	225	—
Total at 31 Dec 2022	109,158	28,285	561	138,004	—	0.4	10.9	0.1

Treasury risk

Overview

Treasury risk is the risk of having insufficient capital, liquidity or

funding resources to meet financial obligations and satisfy regulatory

requirements, including the risk of adverse impact on earnings or

capital due to structural and transactional foreign exchange

exposures, as well as changes in market interest rates, together with

pension and insurance risk.

Treasury risk arises from changes to the respective resources and

risk profiles driven by customer behaviour, management decisions or

the external environment.

Approach and Policy

(Audited)

Our objective in the management of treasury risk is to maintain

appropriate levels of capital, liquidity, funding, foreign exchange and

market risk to support our business strategy, and meet our regulatory

and stress testing-related requirements.

Report of the Directors | Risk


52	HSBC UK Bank plc Annual Report and Accounts 2023

Our approach to treasury management is driven by our strategic and

organisational requirements, taking into account the regulatory,

economic and commercial environment. We aim to maintain a strong

capital and liquidity base to support the risks inherent in our business

and invest in accordance with our strategy, meeting regulatory

requirements at all times.

Our policy is underpinned by our risk management framework. The

risk management framework incorporates a number of measures

aligned to our assessment of risks for both internal and regulatory

purposes. These risks include credit, market, operational, pensions,

structural and transactional foreign exchange risk, and interest rate

risk in the banking book.

For further details, refer to our Pillar 3 Disclosures at 31 December

2023.

Treasury Risk Management

Key developments in 2023

– Following high-profile banking failures in the first quarter of 2023,

we reviewed our liquidity monitoring and metric assumptions as

part of our internal liquidity adequacy assessment process cycle to

ensure they continued to cover observed and emerging risks.

– Effective July 2023, the Bank of England’s Financial Policy

Committee doubled the UK countercyclical capital buffer rate from

1% to 2%, in line with the usual 12‑month implementation lag.

The change increased our CET1 ratio requirement by

approximately 0.9 percentage points.

– In the Bank of England's 2022/2023 annual cyclical scenario stress

test, we made our first separate submission as a Ring-Fenced

Bank. The results were published in July, and showed we were

able to withstand the severe macroeconomic scenario and had the

capacity to support households and businesses during the stress.

– We further stabilised our net interest income against a backdrop

of fluctuating interest rate expectations as the trajectory of

inflation for major economies was reassessed.

– Following the acquisition of SVB UK in the first quarter of 2023,

the HSBC Group launched HSBC Innovation Banking in June,

which combined the expertise of SVB UK with the reach of our

international network. We are in the process of integrating HSBC

Innovation Bank Limited into the group. The acquisition was

funded from existing resources, and the impact on our LCR and

CET1 ratio was minimal. HSBC Innovation Bank Limited has been

included in our Domestic Liquidity Sub-Group.

For quantitative disclosures on capital ratios, own funds and RWAs,

see pages 56 to 57. For quantitative disclosures on liquidity and

funding metrics, see page 58.

Governance and structure

The Chief Risk Officer is the accountable risk steward, and the Chief

Financial Officer is the risk owner, for all treasury risks.

Capital risk, liquidity risk, interest rate risk in the banking book,

structural foreign exchange risk and transactional foreign exchange

risk are the responsibility of the Executive Committee and the Risk

Committee (‘RC’). Treasury actively manages these risks on an

ongoing basis, supported by the HSBC UK Asset and Liability

Management Committee (‘ALCO’), overseen by Treasury Risk

Management.

Pension risk is overseen by a Pensions Risk Management Meeting

chaired by the accountable risk steward.

Capital, liquidity and funding risk management

Assessment and risk appetite

Our capital management policy is supported by a global capital

management framework. The framework sets out our approach to

determining key capital risk appetites including CET1, total capital,

minimum requirements for own funds and eligible liabilities (‘MREL’),

and the leverage ratio. Our internal capital adequacy assessment

process (‘ICAAP’) is an assessment of the group’s capital position,

outlining both regulatory and internal capital resources and

requirements resulting from our business model, strategy, risk profile

and management, performance and planning, risks to capital, and the

implications of stress testing. Our assessment of capital adequacy is

driven by an assessment of risks. These risks include credit, market,

operational, pensions, insurance, structural foreign exchange, interest

rate risk in the banking book and Group risk. Climate risk is also

considered as part of the ICAAP, and we are continuing to develop

our approach. The ICAAP supports the determination of the

consolidated capital risk appetite and target ratios, as well as enables

the assessment and determination of capital requirements by

regulators.

HSBC Holdings provides our MREL, including equity and non-equity

capital. These investments are funded by HSBC Holdings’ own equity

capital and MREL-eligible debt. MREL includes own funds and

liabilities that can be written down or converted into capital resources

in order to absorb losses or recapitalise a bank in the event of its

failure. In line with our existing structure and business model, HSBC

has three resolution groups – the European resolution group (of

which HSBC UK forms part), the Asian resolution group and the US

resolution group.

We aim to ensure that management has oversight of our liquidity and

funding risks at Group and entity level through robust governance, in

line with our risk management framework. We manage liquidity and

funding risk in accordance with globally consistent policies,

procedures and reporting standards.

We are required to meet internal minimum requirements and any

applicable regulatory requirements at all times. These requirements

are assessed through our internal liquidity adequacy assessment

process (‘ILAAP’), which helps to ensure that we have robust

strategies, policies, processes and systems for the identification,

measurement, management and monitoring of liquidity risk over an

appropriate set of time horizons, including intra-day. The ILAAP

informs the validation of risk tolerance and the setting of risk

appetite. It also assesses our capability to manage liquidity and

funding effectively. These metrics are set and managed locally but

are subject to robust global review and challenge to ensure

consistency of approach and application of the Group’s policies and

controls.

Planning and performance

Capital and RWA plans form part of the annual financial resource plan

that is approved by the Board. Capital and RWA forecasts are

submitted to the ALCO on a monthly basis, and capital and RWAs are

monitored and managed against the plan. The responsibility for global

capital allocation principles rests with the Group Chief Financial

Officer, supported by the Group Capital Management Meeting. This

is a specialist forum addressing capital management, reporting into

Holdings ALCO.

Through our internal governance processes, we seek to strengthen

discipline over our investment and capital allocation decisions, and to

ensure that returns on investment meet management’s objectives.

The group’s strategy is to allocate capital to businesses and entities

to support growth objectives where returns above internal hurdle

levels have been identified and in order to meet their regulatory and

economic capital needs. We evaluate and manage business returns

by using a return on average tangible equity measure and a related

economic profit measure.

Funding and liquidity plans also form part of the financial resource

plan. The Board-level appetite measures are the liquidity coverage

ratio (‘LCR’) and net stable funding ratio (‘NSFR’), together with an

internal liquidity metric. In addition, we use a wider set of measures

to manage an appropriate funding and liquidity profile, including legal

entity depositor concentration limits, intra-day liquidity, forward-

looking funding assessments and other key measures.

Risks to capital and liquidity

Outside the stress testing framework, other risks may be identified

that have the potential to affect our RWAs, capital and/or liquidity

position. Downside and Upside scenarios are assessed against our

management objectives, and mitigating actions are assigned as

necessary. We closely monitor future regulatory developments and

continue to evaluate the impact of these upon our capital and liquidity

requirements, particularly those related to the UK’s implementation


HSBC UK Bank plc Annual Report and Accounts 2023	53

of the outstanding measures to be implemented from the Basel III

reforms (‘Basel 3.1‘).

Regulatory developments

In November 2022, the PRA consulted on the implementation of

Basel III Reforms (‘Basel 3.1’) in the UK. In September 2023, it

announced that the implementation date of Basel 3.1 would be

delayed by 6 months to 1 July 2025. In December 2023, the PRA

published near-final rules in relation to the market risk, credit

valuation adjustment, counterparty credit risk and operational risk

elements of the package, together with information on the planned

review of the Pillar 2 framework. The PRA intends to publish the

near-final rules on the remaining parts, namely credit risk, the output

floor and reporting and disclosure, in the second quarter of 2024. We

continue to assess the impact of the proposed rules.

Further details can be found in the ‘Regulatory developments’ section

of the HSBC UK’s Pillar 3 Disclosures at 31 December 2023.

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 global processes,

improve consistency and enhance controls across regulatory reports.

The ongoing programme of work focuses on our material regulatory

reports and is being phased over a number of years. This programme

includes data enhancement, transformation of the reporting systems

and an uplift to the control environment over the report production

process.

While this programme continues, there may be further impacts on

some of our reported regulatory ratios, such as the CET1, LCR and

NSFR, as we implement recommended changes and continue to

enhance our controls across the process.

Stress testing and recovery planning

We use stress testing to inform management of the capital and

liquidity needed to withstand internal and external shocks, including a

global economic downturn or a systems failure. Stress testing results

are also used to inform risk mitigation actions, input into global

business performance measures, and recovery and resolution

planning, as well as to re-evaluate business plans where analysis

shows capital, liquidity and/or returns do not meet their target.

In addition to a range of internal stress tests, we are subject to

supervisory stress testing by the PRA and Bank of England. The

results of regulatory stress testing and our internal stress tests are

used when assessing our internal capital and liquidity requirements

through the ICAAP and ILAAP. The outcomes of stress testing

exercises carried out by the PRA and Bank of England may inform the

setting of regulatory minimum ratios and buffers.

We maintain a recovery plan which set out potential options

management could take in a range of stress scenarios that could

result in a breach of capital or liquidity buffers. It sets out the

framework and governance arrangements to support restoring HSBC

UK to a stable and viable position, and so lowering the probability of

failure from either idiosyncratic company-specific stress or systemic

market-wide issues. Our recovery plan also provides detailed actions

that management would consider taking in a stress scenario should

our position deteriorate and threaten to breach risk appetite and

regulatory minimum levels. This is to help ensure that we can

stabilise our financial position and recover from financial losses in a

stress environment.

The Group and the BoE publicly disclosed the status of HSBC’s

progress against the BoE’s Resolvability Assessment Framework in

June 2022, following the submission of HSBC’s inaugural resolvability

self-assessment in October 2021. HSBC has continued to enhance its

resolvability capabilities since this time and submitted its second self-

assessment in October 2023. A subsequent update was provided to

the BoE in January 2024. Further public disclosure by the Group and

the BoE as to HSBC’s progress against the Resolvability Assessment

Framework will be made in June 2024.

Overall, HSBC’s recovery and resolution planning helps safeguard the

Group’s financial and operational stability. The Group is committed to

further developing its recovery and resolution capabilities, including in

relation to the Bank of England’s Resolvability Assessment

Framework.

Measurement of interest rate risk in the banking book

processes

Assessment and risk appetite

Interest rate risk in the banking book is the risk of an adverse impact

to earnings or capital due to changes in market interest rates. It is

generated by our non-traded assets and liabilities, specifically loans,

deposits and financial instruments that are not held for trading intent

or held to hedge positions held with trading intent. Interest rate risk

that can be economically hedged may be transferred to the Markets

Treasury business. Hedging is generally executed through interest

rate derivatives or fixed-rate government bonds. Any interest rate risk

that Markets Treasury cannot economically hedge is not transferred

and will remain within the global business where the risks originate.

The Treasury function uses a number of measures to monitor and

control interest rate risk in the banking book, including:

– Net Interest Income sensitivity and Banking net interest income

sensitivity;

– Economic Value of Equity sensitivity; and

– Non-Trading Value at Risk.

Net interest income and banking net interest income sensitivity

A principal part of our management of non-traded interest rate risk is

to monitor the sensitivity of expected net interest income ('NII) under

varying interest rate scenarios (i.e. simulation modelling), where all

other economic variables are held constant. This monitoring is

undertaken at an entity level, where HSBC UK calculates both one-

year and five-year NII sensitivities across a range of interest rate

scenarios.

NII sensitivity figures represent the effect of pro forma movements in

projected yield curves based on a static balance sheet size and

structure. The exception to this is where the size of the balances or

repricing is deemed interest rate sensitive, for example, early

prepayment of mortgages. These sensitivity calculations do not

incorporate actions that would be taken by Markets Treasury or in the

business that originates the risk to mitigate the effect of interest rate

movements.

The NII sensitivity calculations assume that interest rates of all

maturities move by the same amount in the ‘up-shock’ scenario. The

sensitivity calculations in the ‘down-shock’ scenarios reflect no floors

to the shocked market rates. However, customer product-specific

interest rate floors are recognised where applicable.

As at 31 December 2023, the 12 month NII sensitivity for the bank to

an immediate 100bps parallel shock to interest rates is £438m for an

upwards shock (31 December 2022: £829m), and £(524)m for a

downwards shock (31 December 2022: £(955)m). This assessment is

based on a static balance sheet with no management actions from

Treasury, a 50% pass-on assumption on certain interest bearing

deposits and excludes pensions.

During 2023 we introduced an additional metric to measure and

manage the sensitivity of our income to interest rate shocks. In

addition to net interest income sensitivity, we now also monitor

banking net interest income sensitivity. the NII sensitivity measure

does not include the sensitivity of the internal transfer income from

this funding. Banking net interest income sensitivity includes an

adjustment on top of NII sensitivity to reflect this. HSBC UK, has an

insignificant quantity of Trading Book assets that are funded by

Banking Book liabilities therefore the difference between the two

measures is de minimis.

Economic value of equity sensitivity

Economic value of equity ('EVE') represents the present value of the

future banking book cash flows that could be distributed to equity

holders under a managed run-off scenario. This equates to the

current book value of equity plus the present value of future NII in

this scenario. EVE can be used to assess the economic capital

required to support interest rate risk in the banking book. An EVE

sensitivity represents the expected movement in EVE due to pre-

specified interest rate shocks, where all other economic variables are

Report of the Directors | Risk


54	HSBC UK Bank plc Annual Report and Accounts 2023

held constant. Operating entities are required to monitor EVE

sensitivities as a percentage of capital resources.

Further details of HSBC UK's risk management of interest rate risk in

the banking book can be found in the HSBC UK's Pillar 3 Disclosures

as at December 2023.

Non-trading Value at Risk

Non-trading portfolios comprise positions that primarily arise from the

interest rate management of our retail and commercial banking

assets and liabilities, financial investments measured at fair value

through other comprehensive income, debt instruments measured at

amortised cost, and exposures arising from our insurance operations.

The following table summarises the main risk types where non-

trading market risks reside, and the market risk measures used to

monitor and limit exposures.


Risk types	Non-Trading risk
	– Interest rates – Credit spreads
Risk measure	Value at risk \| Sensitivity \| Stress testing

Value at Risk of the non-trading portfolios

(Audited)

The non-trading VaR as at 31 December 2023 was £67.3m,

predominately driven by interest rate risk in the banking book arising

from Markets Treasury and ALCM book positions. The non-trading

VaR increased during the year, fluctuating between £42.2m and

£74.3m with a 2023 average of £57.6m. Markets remain volatile

driven by continued geopolitical events and the shifting of the path of

central bank interest rate expectations driven by changes to

economic growth and inflation outlooks.

Interest rate risk steadily increased in H1 and peaked in Q3 as the

Markets Treasury business took advantage of higher yield

environment driven by inflationary concerns and increased the

outright bond holding with an expectation of end to the rate hike

cycle. Markets Treasury business managed their risk actively

throughout 2023. VaR dipped twice in this upward trend, once

towards the end of Q2 and again towards the end of Q3 as Markets

Treasury managed their risk actively within their limits.

The daily levels of total non-trading VaR over the last year are set out in the graph below.

Daily VaR (non-trading portfolios), 99% 1 day (£m)

The HSBC UK's non-trading VaR for the year is shown in the table below.


Non-trading VaR, 99% 1 day
(Audited)
	Credit spread	Interest Rates	Portfolio Diversification1	Total2
	£m	£m	£m	£m
Balance at 31 Dec 2023	2.2	65.7	(0.7)	67.3
Average	1.9	56.5	(0.8)	57.6
Maximum	2.7	72.2		74.3
Minimum	1.3	42.0		42.2


Balance at 31 Dec 2022	1.4	42.1	(1.0)	42.5
Average	1.4	38.2	(0.9)	38.7
Maximum	2.1	83.4		84.3
Minimum	0.9	24.5		24.3

1Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in

unsystematic market risk that occurs when combining a number of different risk types, for example, interest rate and credit risk together in one

portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number

represents the benefit of portfolio diversification. As the maximum occurs on different days for different risk types, it is not meaningful to calculate a

portfolio diversification benefit for this measure.

2The total VaR is non-additive across risk types due to diversification effects.


HSBC UK Bank plc Annual Report and Accounts 2023	55

Other risks

Non-trading book foreign exchange exposures

Structural foreign exchange exposures

Structural foreign exchange exposures arise from net assets or

capital investments in foreign operations, together with any

associated hedging. A foreign operation is defined as a subsidiary,

associate, joint arrangement or branch where the activities are

conducted in a currency other than that of the reporting entity. An

entity’s functional reporting currency is normally that of the primary

economic environment in which the entity operates.

HSBC UK has no such foreign operations.

Transactional foreign exchange exposures

Transactional foreign exchange risk arises primarily from day-to-day

transactions in the banking book generating profit and loss or fair

value through other comprehensive income (‘FVOCI’) reserves in a

currency other than the reporting currency of the operating entity.

Transactional foreign exchange exposure generated through profit

and loss is periodically transferred to Markets and Securities Services

and managed within limits, with the exception of limited residual

foreign exchange exposure arising from timing differences or for

other reasons. Transactional foreign exchange exposure generated

through OCI reserves is managed by Global Treasury within the

agreed appetite.

Pension risk management process

In the UK, all future pension benefits are provided on a defined

contribution basis. A defined benefit pension plan remains in respect

of past service. The defined benefit pension plan is sectionalised to

ensure no entities outside the ring-fence participate in the same

section as HSBC UK. In the defined contribution pension plan, the

contributions that HSBC UK is required to make are known, while the

ultimate pension benefit will vary, typically with investment returns

achieved by investment choices made by the employee. While the

market risk to HSBC UK of the defined contribution plan is low, the

bank is still exposed to operational and reputational risk.

In the defined benefit pension plan, the level of pension benefit is

known. Therefore, the level of contributions required by HSBC UK

will vary due to a number of risks, including:

– investments delivering a return below that required to provide the

projected plan benefits;

– the prevailing economic environment leading to corporate failures,

thus triggering write-downs in asset values (both equity and debt);

– a change in either interest rates or inflation, causing an increase in

the value of the plan liabilities; and

– plan members living longer than expected (known as longevity

risk).

Pension risk is assessed using an economic capital model that takes

into account potential variations in these factors. The impact of these

variations on both pension assets and pension liabilities is assessed

using a one-in-200-year stress test. Scenario analysis and other stress

tests are also used to support pension risk management.

To fund the benefits associated with HSBC UK’s defined benefit plan,

HSBC UK make contributions in accordance with advice from

actuaries and in consultation with the plan’s trustees where relevant.

Contributions are required when the plan's assets are considered

insufficient to cover the existing pension liabilities. Contributions are

typically revised once every three years.

The defined benefit plan invests contributions in a range of

investments designed to limit the risk of assets failing to meet the

plan’s liabilities. Any changes in expected returns from the

investments may also change future contribution requirements. In

pursuit of these long-term objectives, an overall target allocation is

established for asset classes of the defined benefit plan. Bonds and

derivatives are allocated to match expected benefit outflows so as to

reduce interest, inflation and currency risk. Each permitted asset

class has its own benchmarks, such as property valuation indices or

liability characteristics. The benchmarks are reviewed on a manager

by manager basis at least once every three to five years and more

frequently if required by circumstances. The process takes account of

changes in the plan's liabilities. The most significant benchmark is the

interest rate and inflation hedging programme and this was last

reviewed during 2023. The assets are invested in a diverse range of

asset classes to reduce any concentration of risk.

In addition, the defined benefit plan holds longevity swap contracts.

These arrangements provide long term protection to the defined

benefit plan against costs resulting from pensioners or their

dependants living longer than initially expected and as at

31 December 2023 cover approximately 50% of the pensioner

liabilities.

Capital Risk in 2023

Capital overview


Capital adequacy metrics1
	At 31 Dec
	2023	2022
Available capital (£m)
Common equity tier 1 capital	14,224	12,519
Tier 1 capital	16,479	14,771
Total regulatory capital	19,772	17,847
Risk-weighted assets (£m)
Credit risk	87,503	80,740
Counterparty credit risk	236	204
Market risk	132	101
Operational risk	13,607	11,368
Total risk-weighted assets	101,478	92,413
Capital ratios (%)
Common equity tier 1	14.0	13.5
Total tier 1	16.2	16.0
Total capital	19.5	19.3
Leverage ratio
Total leverage ratio exposure measure (£m)	270,907	251,500
Leverage ratio (%)	6.1	5.9

1 Unless otherwise stated, regulatory capital ratios and requirements are

based on the transitional arrangements of the Capital Requirements

Regulation (CRR II) as implemented in the UK. Leverage ratios are

reported in accordance with the UK leverage rules.

References to EU regulations and directives (including technical

standards) should, as applicable, be read as references to the UK’s

version of such regulation or directive, as onshored into UK law under

the EU (Withdrawal) Act 2018, and as may be subsequently amended

under UK law.

Regulatory transitional arrangements for IFRS 9 'Financial

Instruments'

We have adopted the regulatory transitional arrangements in CRR II

for IFRS 9, including paragraph four of article 473a. Our capital and

ratios are presented under these arrangements throughout the table

above, including in the end point figures. Without their application,

our CET1 ratio would be 14.0%.The IFRS 9 regulatory transitional

arrangements allow banks to add back to their capital base a

proportion of the impact that IFRS 9 has upon their loan loss

allowances during the first five years of use. The impact is defined as:

– the increase in loan loss allowances on day one of IFRS 9

adoption; and

– any subsequent increase in ECL in the non-credit-impaired book

thereafter.

Any add-back must be tax affected and accompanied by a

recalculation of capital deduction thresholds, exposure and RWAs.

The impact is calculated separately for portfolios using the STD and

IRB approaches. For IRB portfolios, there is no add-back to capital

unless loan loss allowances exceed regulatory 12-month expected

losses.

In the current period, the add-back to the capital base amounted to

£30m under the STD approach. At 31 December 2022, the add-back

to the capital base was £35m under the STD approach.

Report of the Directors | Risk


56	HSBC UK Bank plc Annual Report and Accounts 2023

Own funds

At 31 December 2023, our CET1 capital ratio increased to 14.0%

from 13.5% at 31 December 2022.

The key drivers for the increase in the CET1 capital ratio were:

– an increase of 0.4% from £0.7bn of capital generation through

profit net of dividends partly offset by an increase of £1bn in

RWAs and £0.1bn in excess expected loss deduction (excluding

the SVB UK acquisition impact).

– an increase of 0.1% from the provisional gain of £1.3bn partly

offset by an increase of £8bn in RWAs and of £0.1bn in

intangibles on the acquisition of SVB UK.

At 31 December 2023, our Pillar 2A requirement, in accordance with

the PRA’s Individual Capital Requirement based on a point-in-time

assessment, was equivalent to 3.92% of RWAs, of which 2.2% was

met by CET1 capital. Throughout 2023, we complied with the PRA's

regulatory capital adequacy requirements.


Own funds disclosure
(Audited)		At
		31 Dec	31 Dec
		2023	2022
Ref		£m	£m
	CET1 capital: instruments and reserves
1	Capital instruments and the related share premium accounts	9,015	9,015
	– ordinary shares	9,015	9,015
2,3	Retained earnings, accumulated other comprehensive income (and other reserves)	11,425	9,522
5a	Independently reviewed net profits net of any foreseeable charge or dividend	1,963	896
6	CET1 capital before regulatory adjustments	22,403	19,433
28	Total regulatory adjustments to common equity tier 1	(8,179)	(6,914)
29	CET1 capital	14,224	12,519
36	Additional tier 1 capital before regulatory adjustments	2,255	2,252
44	Additional tier 1 capital	2,255	2,252
45	Tier 1 Capital (T1 = CET1 + AT1)	16,479	14,771
51	Tier 2 capital before regulatory adjustments	3,293	3,076
58	Tier 2 capital	3,293	3,076
59	Total capital	19,772	17,847

*The references identify the lines prescribed in the PRA template, which are applicable and where there is a value.

Risk-weighted assets


RWA movement by business by key driver
	Credit risk, counterparty credit risk and operational risk				Market risk	Total RWAs
	WPB	CMB	GBM	Corporate Centre	Market risk	Total RWAs
	£m	£m	£m	£m	£m	£m
RWAs at 1 Jan 2023	32,953	57,067	508	1,784	101	92,413
Acquisitions and disposals	—	7,979			58	8,037
Asset size	1,485	2,468	28	(570)	(56)	3,355
Asset quality	1,262	367	6	25	—	1,660
Model updates	(699)	(55)	—	—	—	(754)
– new/updated models	(699)	(55)	—	—	—	(754)
Methodology and policy	18	(2,758)	—	(51)	33	(2,758)
– internal updates	18	(2,758)		(51)	33	(2,758)
Foreign exchange movement	(28)	(373)	(9)	(61)	(4)	(475)
Total RWA movement	2,038	7,628	25	(657)	31	9,065
RWAs at 31 Dec 2023	34,991	64,695	533	1,127	132	101,478

Excluding a decrease in RWAs of £0.5bn due to foreign currency

translation differences, RWAs increased by £9.5bn during the period,

primarily due to the acquisition of SVB UK, operational risk RWAs

combined with lending growth and changes in asset quality. This was

offset by reductions due to changes in methodology and policy and

model updates.

Acquisitions:

Increase in RWAs of £8bn on account of acquisition of SVB UK.

Asset size:

Increase in RWAs by £3.3bn mainly in CMB and WPB driven by

operational risk RWAs due to higher average revenue combined with

growth in corporate lending and retail mortgages.

Asset Quality:

Increase in RWAs of £1.7bn mainly due to credit migrations and

changes in underlying portfolio mix.

Model Updates:

Decrease in RWAs in WPB by £0.8bn is mainly driven by the new

retail mortgage model and movement of multilateral development

banks to the standardized approach following the approval from the

PRA.

Methodology and policy:

Decrease in RWAs in CMB by £2.8bn is mainly due to £1bn decrease

from the implementation of a new synthetic securitisation structure.

Further decreases of £1.5bn due to risk parameter refinements and

data quality improvements..

Leverage ratio

Our leverage ratio, calculated in accordance with the PRA's UK

leverage framework implemented on 1 January 2022 was 6.1% at

31 December 2023.

The leverage ratio increased to 6.1% from 5.9% mainly from £2bn of

capital generation through profit net of dividends partly offset by an

increase in exposures of £19.4bn (including the provisional gain of

£1.3bn and increase in exposures by £9.6bn on acquisition of SVB

UK).


HSBC UK Bank plc Annual Report and Accounts 2023	57

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market

discipline and aims to make financial services firms more transparent

by requiring publication of wide-ranging information on their risks,

capital and management. Our Pillar 3 Disclosures at 31 December

2023 is published on HSBC Group’s website, www.hsbc.com, under

‘Investors’.

Liquidity and funding risk in 2023

Liquidity metrics

During 2023, we were above regulatory minimum levels. We

maintain sufficient unencumbered liquid assets to comply with

regulatory requirements. The average liquidity value of these liquid

assets is shown in the table below along with the LCR level on a EC

basis.

We maintain sufficient stable funding relative to the required stable

funding assessed using the NSFR.

Our liquidity and funding position for 2023 is analysed in the following

sections. The LCR and NSFR ratios presented in the below table are

based on average values. The LCR is the average of the preceding 12

months and NSFR is the average of preceding four quarters.


HSBC UK liquidity group1
	Average for
	2023	2022
LCR (%)	201	226
HQLA (£m)	94,765	110,722
Net outflows (£m)	47,234	48,946
NSFR (%)	158	164

1 HSBC UK liquidity group comprises: HSBC UK Bank plc, Marks and

Spencer Financial Services plc, HSBC Trust Company (UK) Limited,

HSBC Private Bank (UK) Limited and HSBC Innovation Bank Limited

(HSBC Innovation Bank Limited is included from 31 March 2023

reporting). It is managed as a single operating entity, in line with the

application of UK liquidity regulation as agreed with the PRA.

At 31 December 2023, HSBC UK's LCR was above the regulatory

minimum. The 2023 average LCR of 201% continues to reflect a

strong liquidity position. The decrease from 2022 is mainly due to a

£10bn reduction in deposits (retail: £8bn and corporate: £2bn) from

the cost of living impact on customers, corporate deleveraging and

competitive pressures.

Liquid assets

We had an average total of £94,765m of highly liquid unencumbered

LCR eligible liquid assets (2022 Average: £110,722m) held in a range

of asset classes and currencies. Of these, 98% were eligible as level

1 (Average 2022: 99%).

The below tables reflects the composition of the average liquidity

pool by asset type and currency for 2023 and 2022:


	Liquidity pool	Cash	Level 1	Level 2
	£m	£m	£m	£m
Cash and balance at central bank	76,238	76,238	—	—
Central and local government bonds	15,438	—	14,639	799
Regional government PSE	232	—	232	—
International organisation and MDBs	1,403	—	1,403	—
Covered bonds	1,382	—	482	900
Other	72	—	—	72
Average Total for 2023	94,765	76,238	16,756	1,771
Average Total for 2022	110,722	97,199	12,286	1,237


	£	$	€	Other	Total
	£m	£m	£m	£m	£m
Average Liquidity Pool for 2023	85,857	6,445	1,297	1,166	94,765
Average Liquidity Pool for 2022	103,757	4,453	1,341	1,171	110,722

Sources of funding

Our primary sources of funding are customer current accounts and

customer savings deposits payable on demand or at short notice. The

following ‘Funding sources and uses’ table provides a consolidated

view of how our balance sheet is funded, and should be read in light

of the LFRF, which requires we manage liquidity and funding risk on a

stand-alone basis.

The table analyses our consolidated balance sheet according to the

assets that primarily arise from operating activities and the sources of

funding primarily supporting these activities. In 2023, the level of

customer accounts exceeded the level of loans and advances to

customers. The positive funding gap was predominantly deployed in

liquid assets, cash and balances with central banks and financial

investments, as required by the LFRF.


Funding Sources
(Audited)	2023	2022
	£m	£m
Sources
Customer accounts	268,345	281,095
Deposits by banks	10,843	10,721
Repurchase agreements – non-trading	4,652	9,333
Debt securities in issue	1,988	1,299
Cash collateral, margin and settlement accounts	267	315
Subordinated liabilities	14,598	12,349
Total equity	26,070	22,226
Other balance sheet liabilities	6,113	5,103
At 31 Dec	332,876	342,441


Funding Uses
(Audited)	2023	2022
	£m	£m
Uses
Loans and advances to customers	211,887	204,143
Loans and advances to banks	7,980	6,357
Reverse repurchase agreements – non-trading	7,686	7,406
Cash collateral, margin and settlement accounts	112	231
Financial investments	26,315	16,092
Cash and balances with Central banks	65,719	94,407
Other balance sheet assets	13,177	13,805
At 31 Dec	332,876	342,441

Report of the Directors | Risk


58	HSBC UK Bank plc Annual Report and Accounts 2023

Market risk

Overview

Market risk is the risk of adverse financial impact on trading activities

arising from changes in market parameters such as interest rates and

foreign exchange rates.

Market risk management

Key developments in 2023

There were no material changes to our policies and practices for the

management of market risk in 2023.

Market risk governance

(Audited)

The following table summarises the market risk measures used to

monitor and limit exposures within HSBC UK. Trading portfolio

market risk exposures within the entity are not material, primarily

because customer facing trades within Markets business are hedged

on a one for one basis and trading book within Markets Treasury

business is limited to short dated cash management.


Risk types	Trading risk
Risk types	– Foreign exchange – Interest rates
Risk measure	VaR \| Sensitivity \| Stress testing

Market risk is managed and controlled through limits approved by the

Group Chief Risk Officer for HSBC Holdings plc. These limits are

allocated across business lines and to the Group’s legal entities,

including HSBC UK. The level of limits set is based on the overall risk

appetite for HSBC UK being cascaded down to the individual entities

and the limits required for the individual desks to be able to execute

their stated business strategy under the HSBC UK ring-fencing

Exceptions Policy. The market risk limits are endorsed by HSBC UK

Risk Management Meeting. HSBC UK has an independent market

risk management and control sub-function, which is responsible for

measuring, monitoring and reporting market risk exposures against

limits on a daily basis. The Traded Risk function enforces the controls

around trading in permissible instruments approved for HSBC UK as

well as following completion of the new product approval process.

Key Risk Management processes

Monitoring and limiting market risk exposures

Our objective is to manage and control market risk exposures while

maintaining a market profile consistent with HSBC UK strategy and

risk appetite as well as operating within the HSBC Group’s risk

appetite for the entity. We use a range of tools to monitor and limit

market risk exposures including sensitivity analysis, VaR, and stress

testing.

VaR is a technique that estimates the potential losses on market risk

positions as a result of movements in market rates and prices over a

specified time horizon and to a given level of confidence. The use of

VaR is integrated into market risk management and is calculated for

all trading positions. HSBC UK does not have a market risk internal

model approval and therefore, VaR is not used for any regulatory

return but only used for internal management information.

Trading book VaR is not used for calculating capital requirements

arising from market risk within HSBC UK. Therefore there is no back

testing of trading book VaR.

Defined benefit pension scheme

Market risk also arises within HSBC UK's defined benefit pension

plan to the extent that the obligations of the plan are not fully

matched by assets with determinable cash flows. Refer to Pension

risk section on page 56 for additional information.

Climate risk

Overview

Climate risks have the potential to cause both financial and non-

financial impacts for HSBC UK. Financial impacts could materialise,

for example, through greater transactional losses and/or increased

capital requirements. Non-financial impacts could materialise if our

own assets or operations are impacted by extreme weather or

chronic changes in weather patterns, or as a result of business

decisions to help achieve the HSBC Group’s climate ambition.

Our approach to managing climate risk in HSBC UK is aligned to the

HSBC Group’s risk management framework, climate risk approach,

and three lines of defence model, which sets out how we identify,

assess, and manage our risks, and we continue to integrate climate

risk within the risk management framework through policies and

controls for traditional risks where appropriate.

We have adopted the HSBC Group's climate ambition to align its

financed emissions to net zero by 2050 and to become net zero in its

own operations and supply chain by 2030.

Key Developments.

– HSBC UK's risk appetite statement was approved by the HSBC

UK Board and includes the measures we intend to take to meet

HSBC Group's ambitions, targets and commitments. In HSBC UK,

our measures are focused on the oversight and management of

climate risks in the WPB and CMB portfolios.

– We completed our 2023 Internal Scenario Analysis exercise and

applied an enhanced internal climate stress testing methodology

which focussed on generating more granular insights which we

are using to improve our understanding of our risk exposures for

use in risk management, business decision making, and to meet

ongoing regulatory expectations.

Governance and structure

The HSBC UK Board takes overall responsibility for our climate

strategy, overseeing executive management in developing the

approach, execution and associated reporting.

Our Chief Risk Officer is responsible for climate financial risks under

the UK Senior Managers Regime. The Chief Risk Officer attends

HSBC UK Board meetings and is a member of the Executive

Committee and, where appropriate, provides verbal or written

updates on climate risk.

The HSBC UK Risk Management Meeting and the HSBC UK Risk

Committee receive updates on our climate risk profile and progress

of our HSBC UK climate risk programme.

Key risk management processes

We continue to integrate climate risk into the policies, processes and

controls across many areas of our organisation, and will update these

as our climate risk management capabilities mature over time.

Challenges

Whilst we have continued to develop our climate risk framework, our

remaining challenges include:

– The diverse range of data sources and data structures needed for

climate-related reporting creates data accuracy and reliability risks.

– Physical risk assessments are limited by the availability of high-

quality data on customer assets and supply chains, and there are

also methodology gaps.

– Transition risk assessments are limited by data gaps on customer

emissions and transition plan and methodology gaps.

– Our management of net zero alignment risk is limited by known

and unknown factors, including the accuracy and reliability of data,

merging methodologies, and the need to develop new tools to

better inform decision making.

We have taken initial steps to develop our capabilities to monitor our

exposure and set risk appetites. Operationalising the HSBC Group’s

ambition is dependent on data and methodologies maturing over time

and requires us to continue developing our internal processes and

tools.


HSBC UK Bank plc Annual Report and Accounts 2023	59

Resilience risk

Overview

Resilience risk is the risk that we are unable to provide critical

services to our customers, affiliates and counterparties as a result of

sustained and significant operational disruption. Resilience risk arises

from failures or inadequacies in processes, people, systems or

external events.

Resilience Risk management

Key developments in 2023

The Operational and Resilience Risk function seeks to provide robust

Risk Steward oversight of the management of risk by our businesses,

functions and legal entities. This includes effective and timely

independent challenge and the provision of expert advice. During

2023 we carried out a number of initiatives to keep pace with

geopolitical, regulatory and technology changes and strengthen the

management of resilience risk:

– We updated our risk taxonomy and control libraries, and refreshed

risk and control assessments.

– We implemented enhanced controls and key processes where

required and heightened monitoring and reporting of cyber, third

party, business continuity and payment/sanctions risks resulting

from global geopolitical tensions including the Russia-Ukraine war.

– We provided analysis and easy to access risk and control

information and metrics that enabled management to focus on

non-financial risks in their decision making and appetite setting.

– We supported a further strengthening of our non-financial risk

governance and improved our coverage and risk steward oversight

of data privacy and change execution.

– Following a number of operational resilience incidents, we

commissioned an independent review of HSBC UK’s operational

and technology resilience. The review will focus upon

operationally disruptive incidents, root cause analysis,

comprehensiveness of our Operational and Technology Resilience

management frameworks, and a deep dive into the important

business services underpinning our technology resilience and

third-party management. The program will deliver a resilience

review report that will outline findings and recommendations and

will be presented to the HSBC UK Board in 1Q24.

Governance and structure

The Enterprise Risk Management target operating model provides a

globally consistent view across resilience risks, strengthening our risk

management oversight while operating effectively as part of a

simplified non-financial risk structure. We view resilience risk across

seven sub-risk types related to: third party risk; technology and cyber

security risk; transaction processing risk; business interruption and

incident risk; data risk; change execution risk; and facilities availability,

safety and security risk.

Performance against risk appetite and key escalations for resilience

risk are reported to the HSBC UK Risk Management Meeting (chaired

by the HSBC UK Chief Risk Officer) and further escalated to the Non-

Financial Risk Management Board (chaired by the Group Chief Risk

and Compliance Officer) as required, with a further escalation path to

the Group Risk Management Meeting and the Group Risk

Committee.

Key risk management process

Operational resilience is our ability to anticipate, prevent, adapt,

respond to, recover and learn from operational disruption while

minimising customer and market impact. Resilience is determined by

assessing whether we are able to continue to provide our most

important business services, within an agreed level of impact

tolerance. This is achieved via day-to-day oversight, periodic and

ongoing assurance, such as deep dive review and controls testing,

which may result in challenges being raised to the business by Risk

Stewards. Further challenge is also raised in the form of quarterly

Risk Steward opinion papers to formal governance. We accept we

will not be able to prevent all disruption but we prioritise investment

to continually improve the response and recovery strategies for our

most important business services.

Business operations continuity

We continue to monitor the global geopolitical situations in Ukraine

and the Middle East and remain ready to take measures to help

ensure business continuity, should the need require. There has been

no impact to our services in HSBC UK. We will continually review

plans and responses to minimise any potential future impact.

Regulatory compliance risk

Overview

Regulatory compliance risk is the risk associated with breaching our

duty to clients and other counterparties, inappropriate market conduct

(including unauthorised trading) and breaching related financial

services regulatory standards. Regulatory compliance risk arises from

the failure to observe relevant laws, codes, rules and regulations and

can manifest itself in poor market or customer outcomes and lead to

fines, penalties and reputational damage to our business.

Regulatory compliance risk management

Key developments in 2023

The structure of HSBC UK’s Compliance function is largely

unchanged over the prior year and in 2023.

The dedicated programme to embed our updated purpose-led

conduct approach (PLCA) has concluded. We have however started

to overlay Consumer Duty MI (Management Information) to satisfy

our Board reporting obligations, with a view to eventually having one

data solution for both PLCA and Consumer Duty outcomes. Work to

map applicable regulations to our risks and controls continued in 2023

alongside the adoption of new tooling to support enterprise-wide

horizon scanning for new regulatory obligations and manage our

regulatory reporting inventories. Climate risk has been integrated into

regulatory compliance policies and processes, with enhancements

made to the product governance framework and controls in order to

ensure the effective consideration of climate, and in particular

greenwashing, risks.

Regulatory developments

Financial service providers continue to operate to stringent regulatory

and supervisory requirements, particularly in the areas of capital and

liquidity management, conduct of business, financial crime, internal

control frameworks, the use of models and the integrity of financial

services delivery.

Within this intense and complex regulatory agenda, there continues

to be ongoing focus by regulators to improve outcomes for banks’

consumers, particularly vulnerable customers, as well as the orderly

and transparent operation of financial markets. The following are

areas of particular focus:

– Higher levels of consumer protection in retail financial markets,

following implementation of the Consumer Duty.

– Ensuring fair treatment of vulnerable customers, including

supporting those in financial difficulties.

– Continuing focus on improving the ring-fencing regime in order to

better serve customers and address future risks.

– Reforms contained in the Financial Services and Markets Act

2023, which provides for a number of changes to the regulatory

architecture in the UK and also contains provisions that would

allow for specified ‘on-shored’ EU legislation to be revoked and

replaced by legislation or rules made by HM Treasury or the

regulators.

– A number of significant initiatives being carried out by government

and regulators intended to open up competition, innovation and

access to cash deposit and withdrawal services and reform of the

regulations that underpin payment services.

– A number of measures which are being taken to reduce the levels

of fraud and tackle fraudulent marketing.

– Increasing focus on climate change and other environmental,

social and governance concerns, including proposals relating to

diversity and inclusion in financial services and implementation of

rules relating to disclosures and anti-greenwashing guidance.

Report of the Directors | Risk


60	HSBC UK Bank plc Annual Report and Accounts 2023

The competitive landscape in which HSBC UK operates may be

impacted by future regulatory changes and government intervention.

We continue to engage in the development of new and amended

regulations in the UK to ensure that the implications have been fully

considered by regulators and the wider industry. We also continue to

work with the UK authorities and regulatory bodies to discuss any

impacts on customers and markets.

Conduct of business

At HSBC UK our conduct management approach focuses on the

impact we have on our customers and the financial markets in which

we operate. Customer experience is at the heart of how we operate,

and we aim to act responsibly and with integrity. As part of this we

have carried out a number of activities during 2023:

– We understood and serviced our customer’s ongoing needs and

continued to champion a strong conduct and customer-focused

culture.

– Our customer-focused agenda is demonstrated through the

delivery of the Consumer Duty Programme, which is closely linked

to our conduct agenda. The first phase of the Duty was delivered

in July 2023 and is helping ensure good outcomes for our

customers across all retail products and services. Focus has now

moved to the second phase of the Programme which is due to be

implemented by July 2024 and primarily concerns confirming and

maintaining good customer outcomes within our closed book of

products.

– We are continuing to improve our digital capabilities by helping to

develop and promote early adoption of the Global Conduct MI

tool, which, when fully operational and embedded will help enable

us to demonstrate the effective management of our non-financial

and conduct risks.

– Conduct management of our vulnerable customer base is high on

the regulatory agenda and has been a continued area of focus for

HSBC UK.

– We continued with the integration of climate risk into HSBC UK’s

wider risk management approach, recognising the importance of

strengthened controls and oversight for our related activities.

– We continued to embed conduct within our business line

processes and through our Non- Financial and Financial Risk

Steward activities.

– We focussed on the effectiveness of HSBC UK Conduct

Governance, to promote visibility and read across of Conduct

issues in all business lines and the efficient, consistent escalation

of issues.

– We delivered our latest annual global mandatory training course

on conduct to reinforce the importance of conduct for all

colleagues and delivered bespoke and focussed conduct training

and guidance to all of our risk steward colleagues.

The Board continues to maintain oversight of conduct matters

through the Risk Committee.

Financial crime risk

Overview

Financial crime risk is the risk that HSBC’s products and services will

be exploited for criminal activity. This includes fraud, bribery and

corruption, tax evasion, sanctions and export control violations,

money laundering, terrorist financing and proliferation financing.

Financial crime risk arises from day-to-day banking operations

involving customers, third parties and employees.

Financial Crime Risk Management

Key developments in 2023

We regularly review the effectiveness of our financial crime risk

management framework, which includes continued consideration of

the complex and dynamic nature of sanctions compliance and export

control risk. We continued to respond to the financial sanctions and

trade restrictions that have been imposed on Russia, including

methods used to limit sanctions evasion.

We also continued to make progress with several key financial crime

risk management initiatives, including:

– Implementation of our intelligence-led, Dynamic Risk Assessment

(DRA) tool in HSBC UK continues to successfully identify more

financial crime, faster, and with less customer friction, compared

to our previous transaction monitoring system. The DRA has also

helped to reduce unnecessary distraction by reducing overall

volume of cases and enabling our Investigations teams to provide

more useful information to law enforcement and other relevant

authorities.

– We successfully introduced the required changes to our

transaction screening capability to accommodate the global

change to payment systems formatting under ISO20022

requirements.

– We continued to strengthen the first party lending fraud

framework, while also continuing to invest in new fraud detection

technologies. This includes the replacement of our core analytics

and rules platform for payments which is expected to go live in

1Q24. The Fraud policies and associated control library were also

refreshed, which included several amendments to strengthen our

internal fraud controls.

– Enhancing our screening and non-screening controls to aid in the

identification of potential sanctions risk related to Russia, as well

as risk arising from export control restrictions

– Deploying a control to help identify likely money mule activity and

intercept suspected payments in near “real-time” across both

WPB and CMB.

Key risk management processes

We will not tolerate knowingly conducting business with individuals

or entities believed to be engaged in criminal activity. We require

everybody in HSBC UK to play their role in maintaining effective

systems and controls to prevent and detect financial crime. Where

we believe we have identified suspected criminal activity or

vulnerabilities in our control framework, we will take appropriate

mitigating action.

We manage financial crime risk because it is the right thing to do to

protect our customers, shareholders, staff, the communities in which

we operate, as well as the integrity of the financial system on which

we all rely. We operate in a highly regulated industry in which the

same policy goals are codified in law and regulation.

We are committed to complying with the laws and regulations of all

the markets in which we operate and applying a consistently high

financial crime standard globally.

We continue to assess the effectiveness of our end-to-end financial

crime risk management framework, and invest in enhancing our

operational control capabilities and technology solutions to deter and

detect criminal activity. We have simplified our framework and

consolidated previously separate, financial crime policies into a single

financial crime policy to drive consistency and provide a more holistic

assessment of financial crime risk. We further strengthened our

financial crime risk taxonomy and control libraries and our monitoring

capabilities through technology deployments. We developed more

targeted metrics, and continued to enhance our governance and

reporting.

We are committed to working in partnership with the wider industry

and the public sector in managing financial crime risk and we

participate in numerous public-private partnerships and information

sharing initiatives. In 2023, our focus remained on measures to

improve the overall effectiveness of the global financial crime

framework, notably by providing input into legislative and regulatory

reform activities in the UK. We did this by contributing to the

development of responses to consultation papers focused on how

financial crime risk management frameworks deliver more effective

outcomes in detecting and deterring criminal activity.

The HSBC UK Risk Committee provides oversight of financial crime

risk matters on behalf of the HSBC UK Board, including matters

relating to anti-money laundering, sanctions, terrorist financing and

proliferation financing.


HSBC UK Bank plc Annual Report and Accounts 2023	61

Model risk

Overview

Model risk is the risk of inappropriate or incorrect business decisions

arising from the use of models that have been inadequately designed,

implemented or used, or from models that do not perform in line with

expectations and predictions.

Model risk arises in both financial and non-financial contexts

whenever business decision making includes reliance on models.

Key developments in 2023

In 2023, we continued to make improvements in our model risk

management processes amid regulatory changes in model

requirements.

Initiatives during the year included:

– In response to regulatory capital changes, we were pleased to

receive PRA approval of the Hybrid Mortgage model, which has

now been fully implemented.

– We welcomed the PRA 'Model Risk Management principles for

banks' SS1/23 published in May 2023 and a programme of work

has been initiated to seek to meet the enhanced model risk

management requirements and provide our plan for compliance to

the PRA by the due date of 17 May 2024.

– We introduced a new procedure to ensure any new tool

developed using Generative AI would require validation by Model

Risk Management before its use.

– We enhanced our frameworks and controls as climate risk and AI

and machine learning models become more embedded in

business processes.

– Our businesses and functions continued to be more involved in

the development and management of models. They continued

with an enhanced focus on key model risk drivers such as data

quality and model methodology.

– Working with the businesses and functions, Model Risk Control

Assessments were refreshed to ensure they continue to be a true

reflection of the Model Risk landscape.

– We further embedded the model risk appetite measures, which

will help our businesses and functions manage model risk more

effectively.

– We continued the transformation of the Model Risk Management

team, with further updates to the model validation processes,

including systems and process enhancements. We also made

further changes to the model inventory system to provide

businesses and functions with improved functionality and more

detailed information related to model risk.

Governance and structure

The HSBC UK Model Risk Committee is chaired by the Chief Risk

Officer and provides oversight of model risk. The committee includes

senior leaders and risk owners across the lines of business, functions

and Risk and focuses on model-related concerns and key model risk

metrics.

Key risk management processes

We use a variety of modelling approaches, including regression,

simulation, sampling, machine learning and judgmental scorecards for

a range of business applications. These activities include customer

selection, product pricing, financial crime transaction monitoring,

creditworthiness evaluation and financial reporting. Responsibility for

managing model risk is delegated from the RMM to the HSBC UK

Model Risk Committee, which is chaired by the Chief Risk Officer.

This committee regularly reviews our model risk management

policies and procedures, and requires the first line of defence to

demonstrate comprehensive and effective controls based on a library

of model risk controls provided by Model Risk Management. Model

Risk Management also reports on model risk to senior management

on a regular basis through the use of risk management information,

risk appetite metrics and top and emerging risks.

We regularly review the effectiveness of these processes, including

the model oversight forum structure, to help ensure appropriate

understanding and ownership of model risk is embedded in the

businesses and functions.

Corporate Governance Report

Corporate governance statement

The Company is committed to high standards of corporate

governance. As a subsidiary of HSBC Holdings plc which complies

with the provisions of the UK Corporate Governance Code, the

Company adopts the HSBC Group’s Subsidiary Accountability

Framework (‘SAF’). The SAF principles set out HSBC Holdings plc’s

high level expectations for corporate governance arrangements in its

subsidiaries. The Board considers the SAF to be sufficiently

comprehensive and robust and has, therefore, chosen not to adopt

another corporate governance code.

During the year ended 31 December 2023 and up to the date of this

report, the Company complied with the SAF and HSBC Group

policies, frameworks and procedures in addition to its relevant legal

and regulatory governance requirements, including the PRA Rulebook

for Ring-Fenced Bodies.

Role of the Board

The role of the Board of Directors is to provide entrepreneurial

leadership of the Company within a framework of prudent and

effective controls which enables risks to be assessed and managed.

The Board is collectively responsible for: the long-term success of the

Company and delivery of sustainable value to its shareholders; setting

and approving the Company’s strategy, risk appetite statement and

management’s capital and operating plans to achieve the strategic

objectives.

The Board comprises a majority of independent non-executive

directors. The roles of the Chairman and Chief Executive Officer are

separate. The Chairman leads the Board and is responsible for its

effectiveness and the Chief Executive Officer leads the day-to-day

management of the Company and execution of strategy.

During the year, the Board completed its annual effectiveness

review. The Board considered the outcome of this review and

endorsed actions to further optimise and enhance governance. All

enhancements suggested in the 2022 review were considered to

have been completed.

In 2023, the Board held six routine meetings and an additional five ad-

hoc meetings to consider matters of a time sensitive nature. The

Board received information from management between meetings

and Directors have full access to all relevant information on a timely

basis, access to the advice of the company secretary and are entitled

to obtain independent external advice at the Company’s expense.

Details of the Board's engagement may be found in ‘Stakeholder

engagement’ on page 7.

Culture and values

Through its work, the Board supports the Company’s purpose and

values outlined on page 5 of the Strategic report by ensuring that the

Company conducts its business by treating customers fairly and

openly, doing business with the right customers and in the right way,

ensuring customers receive good outcomes as required by the

Consumer Duty, is a responsible employer, acts responsibly towards

the communities in which it operates and considers its other

stakeholders.

Report of the Directors | Risk | Corporate Governance Report


62	HSBC UK Bank plc Annual Report and Accounts 2023

Board of Directors

All Directors are subject to annual re-election by the shareholder at

the Company’s Annual General Meeting.

The Directors who served during the year ended 31 December 2023

and up to the date of this report are shown below:

Dame Clara Furse

Chairman and Independent non-executive Director

Chairman of the Chairman’s Nominations and Remuneration

Committee

Appointed to the Board: April 2017

Clara is a non-executive director of Assicurazioni Generali S.p.A. She

is a member of the Panel of Senior Advisors to Chatham House and a

member of the European Financial Services Round Table. She is Chair

of the UK Voluntary Carbon Markets Forum, a group that aims to

operationalise a global, high integrity market for carbon credits; an

essential component of an accelerated and economically productive

transition to net zero. Former appointments include: non-executive

Director of Vodafone Group plc and Amadeus IT Group S.A.; External

Member of the Bank of England’s Financial Policy Committee; lead

independent Director of the UK's Department for Work and Pensions;

Chief Executive of the London Stock Exchange; Group Chief

Executive of Credit Lyonnais Rouse; member of the Shanghai

International Financial Advisory Council and non-executive Director of

Euroclear plc, LCH Clearnet Group Ltd, Fortis SA, Nomura Holdings

and the Legal & General Group.

John David Stuart (known as Ian Stuart)

Executive Director and Chief Executive Officer

Chairman of the Executive Committee

Appointed to the Board: May 2017

Ian has been Chief Executive Officer and director of HSBC UK Bank

plc since May 2017 and is a member of HSBC Holdings plc's Group

Executive Committee. He joined the HSBC Group as a Group General

Manager and Head of Commercial Banking Europe in 2014, having

previously led the corporate and business banking businesses at

Barclays and worked at NatWest and Royal Bank of Scotland for over

20 years. He started his career at the Bank of Scotland and has

worked in financial services for over four decades. Ian was awarded

the Freedom of the City of London for his services to finance. He is

also a non-executive director of UK Finance Limited and a business

ambassador for Meningitis Now.

Marie Claire Baird (known as Claire Baird)

Executive Director and Chief Financial Officer

Member of the Executive Committee

Appointed to the Board: 6 January 2022

Claire was appointed Chief Financial Officer of HSBC UK Bank plc in

January 2022 and is a member of the HSBC UK and Global Finance

executive committees. Prior to her current role, Claire was Chief

Financial Officer of Global Wealth and Personal Banking. Before

joining HSBC, Claire spent 18 years with RBS/NatWest Group, most

recently as Finance Director for Personal Banking, Deputy Chief

Financial Officer for Royal Bank of Scotland (RBS’ Scottish banking

subsidiary) and as a non-executive director of Coutts & Co (RBS’

private bank). Previous roles include Finance Director for Services &

Functions, Head of Global Finance Services, and for Ulster Bank

(RBS’ Irish/Northern Irish subsidiaries), she was Group Financial

Controller and Head of Finance, Retail Banking. Claire is a fellow of

Chartered Accountants Ireland.

Simon Calver

Independent non-executive Director

Member of the Audit Committee

Appointed to the Board: April 2023

Simon is an independent non-executive director of Marks and

Spencer Financial Services plc and is also chairman of Fenwick 1882

Limited and Vinterior Group Limited. He was previously a Fellow of

the Institute of Directors (UK) and a former Entrepreneur of the Year

regional winner in the UK. Throughout his career he has lead

innovation and disruption in major markets, such as the education

sector with Riverdeep and entertainment sector as Chief Executive

Officer of LoveFilm up to the sale to Amazon in 2011. His former

appointments include Chief Executive Officer of Mothercare plc and

LoveFilm International, chairman of Moo Print Ltd, Chemist Direct

Ltd, Gousto Ltd, Firefly Learning Ltd, UK Business Angels Association

and also a non-executive director of Datalex plc.

Oliver Corbett

Independent non-executive Director

Member of the Audit Committee

Appointed to the Board: 1 January 2024

Oliver joined the Board at the start of 2024 and has been a non-

executive director of Allianz (UK) Limited since November 2023.

Oliver was previously Founding Chief Financial Officer of McGill and

Partners and before that held Chief Financial Officer roles at Howden,

LCH Clearnet plc and Novae. He has also served as a Non-Executive

Director and Audit Chair for Close Brothers Group plc and prior to that

Rathbone Brothers Group plc.

James Coyle

Independent non-executive Director

Chairman of the Audit Committee, Member of the Risk Committee

and Chairman's Nominations and Remuneration Committee

Appointed to the Board: May 2018

James is chairman of Marks & Spencer Unit Trust Management

Limited, a non-executive director of Marks and Spencer Financial

Services plc and chairman of HSBC Trust Company (UK) Limited. He

is also senior independent director and chairman of the Audit

Committee of Pollen Street plc and deputy chairman of the Oversight

Board and member of the Audit Governance Board of Deloitte LLP.

Former appointments include: chairman of the board and chairman of

the Audit, Risk and Remuneration Committees of World First UK

Limited; chairman of Supply@ME Capital plc, chairman of the Audit

and Risk Committee of Scottish Water, member of Committees of

the Financial Reporting Council, Group Financial Controller for Lloyds

Banking Group; Group Chief Accountant of Bank of Scotland;

member of the Audit Committee of the British Bankers Association;

non-executive director of the Scottish Building Society; and a non-

executive director and chairman of the Audit Committee of Vocalink

plc.

Jenny Goldie-Scot

Independent non-executive Director

Member of the Risk Committee

Appointed to the Board: 19 July 2022

Jenny is an independent non-executive director of Marks and

Spencer Unit Trust Management Limited. She has spent the bulk of

her career in investment banking operations and finance in senior

leadership roles at Morgan Stanley, both in the UK and the US. She

has had a specific focus on system and process transformation and

her last role was leading a large digital transformation for Google LLC

in California. Jenny has previously served on the board of LCH

Clearnet plc where she was chair of the Nomination Committee.

Mridul Hegde CB

Independent non-executive Director

Chair of the Risk Committee, Member of the Audit Committee and

the Chairman’s Nominations and Remuneration Committee

Appointed to the Board: February 2018

Mridul is an independent non-executive director of HSBC Innovation

Bank Limited. Mridul's former appointments include: Member of

Ernst & Young LLP Public Interest and UK Audit Board: non-executive

director of the UK Municipal Bonds Agency and member of its Risk

and Audit Committee; and senior roles at the Financial Reporting


HSBC UK Bank plc Annual Report and Accounts 2023	63

Council and HM Treasury, where she was Director of Financial

Stability during the 2008 financial crisis and prior to that, Director of

Public Spending.

Janet Henry

Non-executive Director

Appointed to the Board: 1 November 2022

Janet was appointed as HSBC’s Global Chief Economist in August

2015 and is responsible for all HSBC’s economic forecasts and

thematic economic research output globally. She is a Governor of the

UK’s National Institute of Economic and Social Research and a

member of the World Economic Forum’s Chief Economists

Community. Janet joined HSBC in 1996 in Hong Kong where she

worked as an Asian economist. She was previously HSBC’s Chief

European Economist. She is also a director of 3 College Fields

Management Company Limited.

Zoe Knight

Non-executive Director

Appointed to the Board: 1 January 2024

Zoë was appointed Head of Climate Change for HSBC Bank Middle

East Limited in May 2022. She joined the HSBC Global Markets

business in London in 2010, having previously worked in equities in

European and US investment banks. An economist by academic

background, she has participated in a variety of advisory boards and

councils on climate across the financial services industry, including

the UK All Parliamentary Group on Climate Change, the Task Force on

Climate related Financial Disclosures and the Glasgow Financial

Alliance for Net Zero. She is currently a Commissioner on the Energy

Transition Commission.

David Lister

Independent non-executive Director

Member of the Risk Committee and the Audit Committee

Appointed to the Board: May 2018

David is a non-executive director and chairman of HSBC Private Bank

(UK) Limited, Marks and Spencer Financial Services plc and FDM

Group (Holdings) plc. He is also a director of The Caledonian Club

Trust Limited. His former appointments include: member of the board

of governors at Nuffield Health; non-executive director of Interxion

Holding N.V., non-executive director of CIS General Insurance

Limited, Weatherbys Limited and the Department for Work and

Pensions; trustee of The Tech Partnership Limited; and Group Chief

Information Officer at each of National Grid, Royal Bank of Scotland,

Reuters and Boots.

Other Directors that served during the

year

Ekaterina Platonova – Non-executive Director. Resigned from the

Board on 17 April 2023.

Philippe Leslie Van De Walle – Independent Non-executive Director.

Resigned from the Board on 26 April 2023.

Company Secretary

Nicola Black

Appointed: May 2017

Board activities during 2023

The Board’s key areas of focus during 2023 were aligned to the four

pillars of the refreshed strategic plan. In overseeing management's

execution against these four pillars, the Board considers whether the

actions being taken will deliver improvements in customer

experience and support the ambition to transform the bank into one

that is truly customer-centric:

– Focus – the Board considered the areas for strategic growth in the

bank's business. This included the acquisition of SVB UK, further

details of which may be found on page 8. It also received regular

updates on the bank's implementation of the FCA's Consumer

Duty.

– Digitise – the Board reviewed the changes that had been made to

enhance IT and Cloud governance, as well as longer-term

proposals to adopt the Cloud. Consideration was also given to the

bank's IT system resiliency.

– Energise – the Board reviewed management's progress in

embedding hybrid working and how this would enhance the

bank's culture through the lenses of customer, employees and

conduct. It also considered the bank's existing outsourcing

strategy and operational performance.

– Transition – the Board received an update on progress being made

against the bank's Net-Zero Execution Programme.

The Board routinely invites senior management from Risk,

Compliance and Legal to meetings to support the discharge of its

responsibilities. The non-executive Directors meet privately with the

Chief Executive Officer ahead of every Board meeting and hold an in-

camera session at the end of every meeting to consider the

effectiveness of the meeting, the papers and presentations.

The Board met eleven times during 2023.

Board committees

The Board has established committees to assist it in discharging its

responsibilities. Each Board committee operates within Terms of

Reference approved by the Board that set out the scope of the

delegation and responsibilities, the membership and operation of the

committee and its reporting requirements to the Board. The Chairs of

the Board committees report to each Board meeting on their

activities.

During the year and up to the date of this report, the Board's

committees were as follows:

Audit Committee

Role

The Audit Committee has been delegated responsibility for oversight

of financial reporting related matters, internal financial controls and

oversight of HSBC UK's Internal Audit function. All the members of

the committee are independent non-executive directors.

Committee activities during 2023

During the year, the committee reviewed and provided oversight on:

the HSBC UK group’s financial reporting; the integrity of financial

statements and disclosures and management’s application of key

accounting policies and significant accounting judgements; the

financial and regulatory impact of the SVB UK acquisition; the

transformation plans and cost management; the financial and

regulatory reporting control environment; financial performance;

liquidity, funding and capital adequacy monitoring; the Company’s

Financial Resource Plan; the nature and scope of Internal Audit

reviews; the effectiveness of the internal financial reporting control

systems; the effectiveness of the Internal Audit function; and the

external audit process.

To support the discharge of its responsibilities, the committee

routinely invites senior management from Finance, Internal Audit and

the External Auditor to its meetings. The committee also meets

separately with the External Audit Partner and Internal Audit at least

twice each year without any management present.

The committee met six times in 2023.

Risk Committee

The Risk Committee has been delegated responsibility for oversight

and monitoring of risk related matters impacting the Company; risk

governance; and internal control systems (other than internal financial

control systems). All the members of the committee are independent

non-executive directors.

Report of the Directors | Corporate Governance Report


64	HSBC UK Bank plc Annual Report and Accounts 2023

Committee activities during 2023

During the year, the committee has, amongst other matters: provided

oversight of risk-related matters including financial and non-financial

risk; assessed the Company’s risk profile and how risks are mitigated

and controlled; considered current and forward-looking risk

exposures; the Company's risk appetite and tolerance to inform the

Company’s strategy and business plans and made recommendations

to the Board; reviewed the Company’s Internal Capital Adequacy

Assessment Process and Internal Liquidity Adequacy Assessment

Process and stress testing, including the Annual Cyclical Scenario

standalone submission and made recommendations, as appropriate,

to the Board; considered the risk management framework and

effectiveness of the non-financial internal control systems; assessed

data risk; reviewed reports from Compliance and Legal; received

updates on the FCA's Consumer Duty; and considered the

effectiveness of the CRO and risk management function.

The committee routinely invites senior management from Risk,

Compliance, Finance, Legal, Internal Audit and the External Auditor to

support the discharge of its delegated responsibilities. It also meets

twice a year in a private session with each of the CRO, Internal

Auditor and External Audit Partner without any management present.

The committee met seven times in 2023.

Chairman’s Nominations and Remuneration

Committee

Role

The Chairman’s Nominations and Remuneration Committee has been

delegated responsibilities from the Board in relation to nominations

and remuneration for the Company and its subsidiaries. The

committee keeps the composition of the Board and its committees

under constant review and strives to ensure that the membership,

both individually and collectively, has the skills, knowledge and

experience necessary to oversee, challenge and support

management in the achievement of the bank's strategic and business

objectives. The committee also ensures that HSBC UK's Board

Diversity and Inclusion Policy ("Policy") is taken into consideration in

the succession planning, nomination, selection, operation and

evaluation of the Board. The Policy sets out an ambition of 33% of

the Board to be female and to have a minimum of one Board Director

from an ethnic minority background. The current composition of the

Board meets these targets. All the members of the committee are

independent non-executive directors.

Committee activities during 2023

In undertaking its responsibilities, the committee has, amongst other

things, during the year, considered: the Board succession plan;

reviewed and recommended changes to the Board's structure, size

and composition, including skills, knowledge and diversity of the

Board; assessed the independence of non-executive Directors by

reference to the criteria in legislation and regulation and, in particular,

the PRA Rulebook for Ring-fenced Bodies; and ensured that the

remuneration framework and pay review decisions are made in line

with the business strategy, objectives, values and long-term interests

of the Company.

The committee regularly invites the Chief Executive Officer and

senior management in HR to attend meetings to support the

discharge of its delegated responsibilities.

The committee met seven times during 2023.

Executive Committee

Role

The Board delegates the management and day-to-day running of the

Company to the Executive Committee which exercises all the

powers, authorities and discretions of the Board in accordance with

such policies and directions as the Board or HSBC Group may from

time to time determine. The Executive Committee operates as a

general management committee with the Chair being the Chief

Executive Officer. Membership comprises the Executive Directors

and the Chief Executive Officer's senior management team.

Committee activities during 2023

To support this committee in discharging its responsibilities, it has

sub-delegated specific responsibilities to other committees or

meetings of executive management. There is a regular Risk

Management Meeting of the Executive Committee, chaired by the

CRO, to establish, maintain and periodically review the policy and

guidelines for the management of risk within the group. The Risk

Management Meeting also considers financial crime risk

management to ensure effective enterprise wide management of

financial crime risk within the group and to support the Chief

Executive Officer in discharging his financial crime risk

responsibilities.

The committee met eight times in 2023.

Conflicts of interest and

indemnification of Directors

The Company’s Articles of Association grants the Board the authority

to approve Directors’ conflicts and potential conflicts of interest.The

Board has adopted a Conflicts of Interest policy and procedures for

considering and authorising conflicts. A review of authorised

situational conflicts, including the terms of authorisation, is

undertaken by the Board annually.

In accordance with the Companies Act 2006 and the Company’s

Articles of Association, all directors are entitled to be indemnified out

of the assets of the Company in respect of claims from third parties

that may arise in connection with the performance of their functions.

Such qualifying third party indemnity provisions have been in place

during the financial year under review, and remain in place, but have

not been utilised by the Directors. All Directors have the benefit of

directors’ and officers’ liability insurance.

Internal control

The Board is responsible for establishing a framework of controls to

enable the assessment and management of risk and sets the

Company’s Risk Appetite Statement. This is discharged through

reviewing the effectiveness of risk management and internal control

systems and by determining the appetite and tolerance levels for the

types of risks the Company is willing to take to achieve its strategic

objectives for its long-term success and the benefit of its

stakeholders. For more information, please refer to 'Internal Control'

in 'How we manage our risks' section on page 16.

Employment of people with a

disability

HSBC UK strongly believes in providing equal opportunities for all

employees. The employment of people with a disability is included in

this commitment. The recruitment, training, development and

promotion of people with a disability are based on the aptitudes and

abilities of the individual. Should employees become disabled during

their employment with us, efforts are made to continue their

employment. Where necessary, we will provide appropriate training,

facilities and reasonable equipment to ensure that barriers to work

are removed for colleagues. Continuous work is done to ensure

individual support is provided to make home office adjustments.

Further information on Diversity and Inclusion is included on page 5.

Auditor

PricewaterhouseCoopers LLP ("PwC") is the external auditor to the

Company. PwC has expressed its willingness to continue in office

and the Board recommends that PwC be re-appointed as the

Company's auditor. A resolution proposing the reappointment of PwC

as the Company's auditor and giving authority to the Audit

Committee to determine its remuneration will be submitted to the

forthcoming AGM.


HSBC UK Bank plc Annual Report and Accounts 2023	65

Statement on Going Concern

The Board, having made appropriate enquiries, is satisfied that the group as a whole has adequate resources to continue operations for a period

of at least 12 months from the date of this report, and it, therefore, continues to adopt the going concern basis in preparing the financial

statements.

In making their going concern assessment, the Directors have considered a wide range of detailed information relating to present and potential

conditions including: profitability; cash flows; capital requirements; and capital resources. These considerations include stressed scenarios that

reflect the uncertainty in the macroeconomic environment following rising inflation and the Russia-Ukraine and Israel-Hamas wars, disrupted

supply chains globally, other top and emerging risks, including climate change, as well as from the related impacts on profitability, capital and

liquidity.

Further information relevant to the assessment is provided in the Strategic Report and the Report of the Directors, in particular:

– A description of the group’s strategic direction;

– A summary of the group’s financial performance and a review of performance by business;

– Reports and updates regarding regulatory and internal stress testing;

– The group’s approach to capital management and its capital position; and

– The top and emerging risks facing the group, as appraised by the Directors, along with details of the group's approach to mitigating those

risks and its approach to risk management in general.

The objectives, policies and processes for managing credit, liquidity and market risk are set out in the 'Risk section' of the ‘Report of the

Directors' on pages 15 to 67.

Report of the Directors | Corporate Governance Report


66	HSBC UK Bank plc Annual Report and Accounts 2023

Directors' Report Disclosures table

The following table sets out the disclosures required by the

Companies Act 2006, the Large and Medium-sized Companies and

Groups (Accounts and Reports) Regulations 2008 (as updated by

Companies (Miscellaneous Reporting) Regulations 2018) and other

applicable regulations, which are incorporated by reference in this

Directors' Report:


	Page
Stakeholder Engagement	Stakeholder engagement and Section 172 on page 7
Employee Engagement	Stakeholder engagement and Section 172 on page 7
Employee Health and Safety	Strategic report 'Supporting our colleagues' on page 6
Diversity & Inclusion	Strategic report 'Supporting our colleagues' on page 6 and Corporate Governance Report on page 62
Results and Dividends	Financial summary on pages 9 to 12 and Note 6 of the Financial statements on page 100
Segmental Analysis	Strategic report on pages 10 to 11 and Note 1.1(f) of the Financial statements on page 85
Future Developments	Strategic report 'Our strategy' on pages 5 to 6
Share Capital	Note 23 of the Financial statements on page 118
Risk Factors	Report of the Directors on pages 15 to 68
Directors' Emoluments	Note 3 of the Financial statements on page 93
Opportunities and Threats	Strategic report on pages 5 to 6 and Risk report on pages 15 to 62
Directors	Corporate Governance Report on page 62
Subsidiaries and Joint Ventures	Note 30 of the Financial statements on pages 124 to 125
Director Indemnities	Corporate Governance Report on page 62
Post Balance Sheet Events	Note 29 of the Financial statements page 124

The Report of the Directors comprising pages 15 to 68 was approved

by the Board on 20 February 2024 and is signed on its behalf by:

Nicola Black

Company Secretary

HSBC UK Bank plc

Registered number 9928412


HSBC UK Bank plc Annual Report and Accounts 2023	67

Statement of directors' responsibilities in respect of the

financial statements

The directors are responsible for preparing the Strategic report, the Report of the Directors and the financial statements in accordance with

applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the

group and the company financial statements in accordance with UK-adopted international accounting standards. In preparing the group and

company financial statements, the directors have also elected to comply with International Financial Reporting Standards as issued by the

International Accounting Standards Board.

Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the

state of affairs of the group and company and of the profit or loss of the group for that period. In preparing the financial statements, the

directors are required to:

– select suitable accounting policies and then apply them consistently;

– state whether applicable UK-adopted international accounting standards and International Financial Reporting Standards as issued by the

International Accounting Standards Board have been followed, subject to any material departures disclosed and explained in the financial

statements;

– make judgements and accounting estimates that are reasonable and prudent; and

– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue

in business.

The directors are responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention

and detection of fraud and other irregularities.

The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s

transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that

the financial statements comply with the Companies Act 2006.

The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the

preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed in Corporate Governance Report confirm that, to the best of their knowledge:

– the group and company financial statements, which have been prepared in accordance with UK-adopted international accounting standards

and International Financial Reporting Standards as issued by the International Accounting Standards Board, give a true and fair view of the

assets, liabilities and financial position of the group and company, and of the profit of the group; and

– the Strategic report and the Report of the Directors include a fair review of the development and performance of the business and the

position of the group and company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the directors’ report is approved:

– so far as the director is aware, there is no relevant audit information of which the group’s and company’s auditors are unaware; and

– they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information

and to establish that the group’s and company’s auditors are aware of that information.

Approved by the Board on 20 February 2024 and signed on its behalf by:

Nicola Black

Company Secretary

HSBC UK Bank plc

Registered number 9928412

Statement of Directors' responsibilities in respect of the financial statements


68	HSBC UK Bank plc Annual Report and Accounts 2023

Independent auditors’ report to the members of HSBC UK

Bank plc

Report on the audit of the financial statements

Opinion

In our opinion, HSBC UK Bank 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 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 as applied in accordance with the provisions

of the Companies Act 2006; 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 income statement for the year ended 31 December 2023; the consolidated statement of comprehensive income for the year

ended 31 December 2023; the consolidated balance sheet as at 31 December 2023; the consolidated statement of changes in equity for the

year ended 31 December 2023; the consolidated statement of cash flows for the year ended 31 December 2023; the parent company balance

sheet as at 31 December 2023; the parent company statement of changes in equity for the year ended 31 December 2023; the parent

company statement of cash flows for the year ended 31 December 2023; and the notes to the financial statements, which include a description

of the material accounting policies. 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 15 to 62.

Our opinion is consistent with our reporting to the Audit Committee.

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.

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

Reporting Standards as issued by the International Accounting Standards Board.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ('ISAs (UK)') and applicable law. Our responsibilities under

ISAs (UK) 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 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 the FRC’s Ethical Standard were not provided.

Other than those disclosed in Note 4, we have provided no non-audit services to the parent company or its controlled undertakings in the

period under audit.

Our audit approach

Overview

Audit scope

– HSBC UK Bank plc is a member of the HSBC Group, the ultimate parent company of which is HSBC Holdings plc. HSBC UK Bank plc

operates in the United Kingdom;

– We performed an audit of the complete financial information of one reporting unit namely HSBC UK Bank plc (parent company);

– For HSBC Innovation Bank Limited ('HINV') and HSBC Invoice Finance Limited ('HIF'), specific audit procedures were performed over

selected account balances; and

– For out of scope entities, we performed risk assessment procedures to confirm no additional procedures were required in line with our

conclusions drawn from our scoping assessment.

Key audit matters

– Expected credit loss ('ECL') provision for loans and advances (group and parent);

– Valuation of the defined benefit pension surplus (group and parent); and

– Acquisition of HINV (formerly Silicon Valley Bank UK Limited) (group).

Materiality

– Overall group materiality: £268m (2022: £202m) based on 5% of adjusted profit before tax (2022: adjusted profit before tax).

– Overall parent company materiality: £249m (2022: £200m) based on 5% of profit before tax (2022: adjusted profit before tax).

– Performance materiality: £201m group (2022: £151m) and £187m parent company (2022: £150m).


HSBC UK Bank plc Annual Report and Accounts 2023	69

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.

Acquisition of HINV (formerly Silicon Valley Bank UK Limited) is a new key audit matter this year. Otherwise, the key audit matters below are

consistent with last year.


Expected credit loss ('ECL') provision for loans and advances
Key audit matter	Matters discussed with the Audit Committee
Determining expected credit loss ('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 forward looking economic scenarios and their probability weightings (specifically the central and downside scenarios given these have the most material impact on ECL); – estimating expected cash flows and collateral valuations to assess the ECL of credit impaired wholesale exposures; and – assumptions made in relation to the other credit management judgemental adjustment for retail unsecured portfolios in particular, the methodology for incorporating the impact of delayed defaults. The level of estimation uncertainty and judgement has remained high as a result of the continued high levels of inflation and increases in interest rates. This leads to uncertainty around judgements made in determining the severity and probability weighting of macroeconomic variable forecasts across the different economic scenarios used in ECL models, and in the estimation of expected cash flows and collateral valuations on credit impaired stage 3 exposures. There is a risk that models are not appropriately responding to changes in the economic environment and that management judgemental adjustments are required.	We held discussions with the Audit Committee covering governance and controls over ECL with a significant focus on the uncertain prevailing macroeconomic conditions. We discussed a number of areas including: – the severity of forward looking economic scenarios, and their related probability weightings; – the valuation of credit impaired exposures, with focus on assumptions made in the recoverability of significant wholesale exposures; – the appropriateness of adjustments due to low level of defaults and a high interest rate environment, with a focus on assumptions made in the quantification of adjustments and associated exit criteria; and – the disclosures made in relation to ECL.
How our audit addressed the key audit matter
We assessed the design and effectiveness of controls and governance over the estimation of ECL with a significant focus on the uncertain prevailing macroeconomic conditions. We observed and tested management’s review and challenge governance forums for: 1. the determination of forward looking economic scenarios and their probability weightings; and 2. the assessment of ECL for Retail and Wholesale portfolios, including the assessment of ECL calculated on high value credit-impaired stage 3 exposures. 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: – the input of critical data elements into source systems and the flow and transformation of critical data elements from source systems to impairment models and management judgemental adjustments; – credit reviews that determine credit risk ratings (CRRs) for wholesale customers; – model validation and monitoring; – the calculation and approval of management judgemental adjustments to modelled outcomes; – the identification of credit-impairment triggers; and – the approval of significant individual impairments relating to high value wholesale credit-impaired exposures. We involved our economic experts in assessing the significant assumptions made in determining the severity and probability weighting of forward looking economic scenarios. These assessments considered the sensitivity of ECLs to variations in the severity and probability weighting of macroeconomic variables for different economic scenarios. We involved our modelling specialists in assessing the appropriateness of the significant assumptions and methodologies used for models and certain management judgemental assumptions, including independently replicating the model logic for a sample of models and recalculating the Other credit management judgemental adjustment for retail unsecured portfolios. 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 credit risk disclosures made in the financial statements.
Relevant references in the Annual Report and Accounts 2023
Note 1.2(g): Impairment of amortised cost and FVOCI financial assets, page 88. Summary of credit risk, page 26. Measurement uncertainty and sensitivity analysis of ECL estimates, page 32.

Independent auditors’ report to the members of HSBC UK Bank plc


70	HSBC UK Bank plc Annual Report and Accounts 2023


Valuation of the defined benefit pension surplus
Key audit matter	Matters discussed with the Audit Committee
The defined benefit pension scheme is in a net surplus position as at 31 December 2023 consistent with the prior year. Defined benefit obligation The valuation of the defined benefit obligation is dependent on a number of actuarial assumptions. We consider the discount rate, inflation rate and mortality rates to be the most significant assumptions used in determining the defined benefit obligation. Management uses an actuarial expert to determine the valuation of the defined benefit obligation. The valuation methodology uses a number of market-based inputs and other financial and demographic assumptions. Changes in these assumptions can have a material impact on the valuation due to the long duration of the pension liabilities and as such the valuation is considered to be highly judgemental. Pension Assets The pension scheme assets consist of various classes of pension assets, some of which are more complex to value and therefore higher risk. These include directly held property and some more complex pooled investment vehicles (‘PIVs’). Management utilise valuation experts to determine the value of certain classes of more complex pension assets such as the valuation of certain PIVs and directly held property. The estimation of fair value for these assets is highly judgemental as it relies on subjective valuation approaches as well as unobservable inputs.	We discussed the methodologies and significant assumptions used by management to determine the value of the defined benefit obligation including the results of the work performed by our actuarial experts. For the complex scheme assets, our discussions included: – our assessment of the valuation methodology adopted by management's experts when valuing complex assets such as property; and – the results of the additional audit procedures which we performed to corroborate the reasonableness of the valuations independently obtained from the PIV investment managers.
How our audit addressed the key audit matter
We tested 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. Our substantive testing over the defined benefit obligation included the following: – we engaged our actuarial experts to assess the reasonableness of the judgements made by management and management’s actuarial expert in determining the key financial and demographic assumptions used in the calculation of the defined benefit obligation; – we assessed the reasonableness of the assumptions using independently compiled expected ranges based on market observable indices and our market experience; and – we evaluated the appropriateness of the pension disclosures within the financial statements, including the disclosure regarding the sensitivity of assumptions. Our substantive testing over pension assets included the following: – we obtained independent confirmations to support the investment valuations from the fund manager for material investment balances; – we engaged our valuation experts to independently review a sample of property assets, including assessing the appropriateness of assumptions and valuation methodologies adopted; and – in respect of more complex pooled investment vehicles, we obtained statements from the underlying investment managers to confirm the fair value at the year end and performed one or more of the following additional procedures: – agreed valuation statements from fund managers to audited fund financial statements; – reviewed the investment managers’ controls reports in respect of valuation controls; – reviewed transaction prices close to the year end for the fund where they were available. We evaluated and tested the pension disclosures made in the financial statements.
Relevant references in the Annual Report and Accounts 2023
Note 1.2(h): Employee compensation and benefit, page 91.


HSBC UK Bank plc Annual Report and Accounts 2023	71


Acquisition of HINV (formerly Silicon Valley Bank UK Limited)
Key audit matter	Matters discussed with the Audit Committee
On 13 March, HSBC UK Bank plc acquired Silicon Valley Bank UK Limited (now known as HSBC Innovation Bank Limited) for £1. The business combination is accounted for in the consolidated financial statements in accordance with IFRS 3 ‘Business Combinations'. The assets and liabilities acquired were stated at their fair values which were determined in the course of the purchase price allocation and fair value determination. This resulted in a fair value of identifiable net assets acquired of £1,307m. Management made judgements, estimates and assumptions in allocating the purchase price and determining fair value. Changes in these assumptions could have a significant effect on the purchase price allocation and fair values. This process included complex valuation considerations and required the use of a management expert. This is a material acquisition for the Group and given the level of estimation and judgement required, we considered it to be a key audit matter.	We held discussions with the Audit Committee covering the methodologies and significant assumptions used by management to determine the fair value of the assets and liabilities acquired. Our discussions centred around the most significant judgements related to the identification and valuation of intangible assets acquired, namely the core deposit intangible, and calculating the fair value discount on the loan portfolio.
How our audit addressed the key audit matter
Our substantive testing procedures included: – we obtained an understanding of management’s process related to acquisition accounting. We assessed whether the accounting treatment associated with the assets and liabilities acquired was in accordance with IFRS 3 'Business Combinations'; – we evaluated the objectivity and competence of management’s expert involved in the valuation of the acquired assets and liabilities; and – we engaged our internal valuation experts to assist us in reviewing the valuation report prepared by management’s expert, and to assess the appropriateness of the methodology and assumptions used to determine fair values, with particular focus on the core deposit intangible and the fair value discount on the loan portfolio. We evaluated and tested the disclosures made in the Annual Report in relation to the acquisition.
Relevant references in the Annual Report and Accounts 2023
Note 1.2a: Consolidation and related policies, page 86. Note 28: Business acquisitions, page 123.

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.

We performed a risk assessment, giving consideration to relevant internal and external factors, including climate change, economic risks,

relevant accounting and regulatory developments, HSBC’s strategy and any changes taking place within the group. We also considered our

knowledge and experience obtained in prior year audits.

Using our risk assessment, we continually assessed risks and changed the scope of our audit where necessary.

HSBC UK Bank plc is structured into three divisions which are Wealth and Personal Banking ('WPB'), Commercial Banking ('CMB') and Global

Banking and Markets ('GBM'). The divisions operate across a number of subsidiary entities in the United Kingdom. The consolidated financial

statements are an aggregation of the subsidiary entities (‘reporting units’). Each reporting unit submits their financial information to the group

which is aggregated within the group’s main consolidation and financial reporting system.

In establishing the overall approach to the group audit, we scoped our work using the balances included in the consolidation pack and

determined the type of work that needed to be performed over the reporting units.

As a result of our group scoping, we determined that an audit of the complete financial information of HSBC UK Bank plc (parent company) was

necessary, owing to its financial significance.

We then considered the significance of other reporting units in relation to primary statements account balances. In doing this we also

considered the presence of any significant audit risks and other qualitative factors (including history of misstatements through fraud or error).

For two reporting units, specific audit procedures were performed over significant account balances as follows; for HSBC Innovation Bank

Limited these were ‘Loans and advances to customers’ and ‘Customer accounts’; for HSBC Invoice Finance (UK) Limited this was ‘Items in the

course of collection from other banks’. For the remainder of the reporting units, the risk of material misstatement was mitigated through group

audit procedures including testing of entity level controls and subsidiary level analytical review procedures.

Additionally audit procedures were performed on certain group-level account balances including goodwill.

Certain balances were audited by the PwC HSBC Holdings plc Group engagement team where they related to Group level accounts. HSBC has

entity level controls that have a relevance 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 operation centres run by Digital Business Services ('DBS'). Whilst these

operation centres are not separate components, the IT and operational processes and controls are relevant to the financial information of HSBC

UK Bank plc. Financial reporting processes and controls are also performed centrally in HSBC UK Bank plc’s finance team, including the

impairment assessment of investment in subsidiaries and intangible assets, the consolidation of the HSBC UK Bank plc's results, the

preparation of financial statements, and certain management oversight controls relevant to financial reporting.

HSBC Holdings plc 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, forward looking economic scenarios for ECL, operating

expenses, intangible assets, valuation of financial instruments, intercompany eliminations, reconciliations and consolidation as well as payroll.

For these areas, we directed and provided oversight of the audit work performed by PwC teams in the UK or overseas, supplemented by our

own testing. 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 financially significant components.

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72	HSBC UK Bank plc Annual Report and Accounts 2023

For all in-scope reporting units, the group audit engagement partner was also the partner overseeing the audit work performed.

For the parent company, we determined our scope of work using our risk assessment and parent company materiality level. Based on these,

we assessed the level of testing required on each financial statement line item in order to be able to give an opinion on the parent company

financial statements. We utilised work performed over the HSBC UK Bank plc reporting unit as part of the group audit, performing further work

where necessary, and tested parent company balances such as investments in subsidiaries.

The impact of climate risk on our audit

As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the group’s financial

statements. We evaluated and challenged management's assessment of the impact of climate change risk, which is set out on page 59,

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 cash flows 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; and

– 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.

We remained alert when performing our audit procedures for any indicators of the impact of climate risk. Our procedures did not identify any

material impact as a result of climate risk on the group’s and parent company’s financial statements.

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	£268m (2022: £202m)	£249m (2022: £200m)
How we determined it	5% of adjusted profit before tax (2022: adjusted profit before tax)	5% of profit before tax (2022: adjusted profit before tax)
Rationale for benchmark applied	Adjusted profit before tax (group) and profit before tax (parent company) are the primary measures used by shareholders in assessing the performance of the group and the parent company. In determining our benchmark for overall materiality, we considered the gain on bargain purchase related to the acquisition of HINV as a one-off transaction and this has been adjusted in the profit before tax as we consider this item to be unrelated to the underlying performance of the group. No such one off transactions were identified at the parent company level and we therefore consider profit before tax to be an appropriate benchmark for the parent company materiality. The benchmark used in 2022 was adjusted profit before tax. The adjusted profit before tax considered the impact of certain customer redress and restructuring programmes which were concluded to be unrelated to the underlying performance of the group and parent company and which were considered to not be significant in 2023.

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of

materiality allocated across components was £14m - £249m. Certain components were audited to a local statutory audit materiality that was

also less than our overall group materiality.

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 £201m (2022: £151m) for the group financial statements

and £187m (2022: £150m) 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 Audit Committee that we would report to them misstatements identified during our audit above £13m (group audit) (2022:

£10m) and £12m (parent company audit) (2022: £10m) as well as misstatements below those amounts that, in our view, warranted reporting

for qualitative reasons.

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 risks to the financial and

operating performance of the group;

– understanding and evaluating the group’s financial forecasts, including the severity of the stress scenarios that were used;

– understanding and evaluating the group’s capital resources and available liquidity and regulatory capital requirements; and

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

Based on the work 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.


HSBC UK Bank plc Annual Report and Accounts 2023	73

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.

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.

Responsibilities for the financial statements and the audit

Responsibilities of the Directors for the financial statements

As explained more fully in the Statement of Directors’ Responsibilities in respect of the financial statements, 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) 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 the Consumer Credit Act 1974, the Financial Conduct Authority's ('FCA') regulations and the Prudential Regulation Authority's ('PRA')

regulations, 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 UK 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 risk related to posting inappropriate journal entries in relation to cost targets, and

management bias in accounting estimates and judgements. Audit procedures performed by the engagement team included:

– discussing with management and those charged with governance any known or suspected instances of non-compliance with laws and

regulation and fraud;

– reviewing and assessing the group’s whistleblowing findings which may be indicative of heightened potential fraud risk and reviewing

management’s investigation of such matters;

– reviewing minutes of meetings of those charged with governance;

– identifying and testing manual journal entries, in particular any journals posted by senior management and those meeting defined fraud risk

criteria and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business;

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

expected credit loss provisions of loans and advances to customers (see related key audit matter);

– agreeing financial statement disclosures to underlying supporting documentation, reviewing correspondence with regulators including the

FCA and PRA, reviewing correspondence with the group’s external legal advisors, enquiring with management and legal counsel about

ongoing litigation and claims against the group and reviewing internal audit reports in so far as they related to the financial statements; and

– incorporating unpredictability into the nature, timing and/or extent of our testing.

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74	HSBC UK Bank plc Annual Report and Accounts 2023

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

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 is located on the FRC’s website at: www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditors’ report.

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 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 Audit Committee, we were appointed by the members on 7 August 2017 to audit the financial

statements for the year ended 31 December 2017 and subsequent financial periods. The period of total uninterrupted engagement is 7 years,

covering the years ended 31 December 2017 to 31 December 2023.

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.

Hamish Anderson (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Birmingham

20 February 2024


HSBC UK Bank plc Annual Report and Accounts 2023	75

Financial statements


Contents
77	Consolidated income statement
78	Consolidated statement of comprehensive income
79	Consolidated balance sheet
80	Consolidated statement of changes in equity
81	Consolidated statement of cash flows
82	HSBC UK Bank plc balance sheet
83	HSBC UK Bank plc statement of changes in equity
84	HSBC UK Bank plc statement of cash flows

Notes on the financial statements


Contents
85	1	Basis of preparation and material accounting policies
93	2	Net fee income
93	3	Employee compensation and benefits
98	4	Auditors’ remuneration
98	5	Tax
100	6	Dividends
100	7	Fair values of financial instruments carried at fair value
101	8	Fair values of financial instruments not carried at fair value
103	9	Derivatives
105	10	Financial investments
106	11	Assets pledged, collateral received and assets transferred
107	12	Interests in joint ventures
107	13	Investments in subsidiaries
108	14	Structured entities
108	15	Goodwill and intangible assets
109	16	Prepayments, accrued income and other assets



109	17	Debt securities in issue
109	18	Accruals, deferred income and other liabilities
110	19	Provisions
112	20	Subordinated liabilities
113	21	Maturity analysis of assets, liabilities and off-balance sheet commitments
113	21
117	22	Offsetting of financial assets and financial liabilities
118	23	Called up share capital and other equity instruments
119	24	Contingent liabilities, contractual commitments, guarantees and contingent assets
120	25	Finance lease receivables
120	26	Legal proceedings and regulatory matters
121	27	Related party transactions
123	28	Business acquisitions
124	29	Events after the balance sheet date
124	30	HSBC UK Bank plc’s subsidiaries and joint ventures

Financial statements


76	HSBC UK Bank plc Annual Report and Accounts 2023

Consolidated income statement


for the year ended 31 December
		2023	2022
	Notes	£m	£m
Net interest income		7,787	6,203
– interest income1,2,3		12,915	7,592
– interest expense		(5,128)	(1,389)
Net fee income	2	1,284	1,245
– fee income		1,554	1,493
– fee expense		(270)	(248)
Net income from financial instruments held for trading or managed on a fair value basis		414	384
Gain on acquisition of subsidiary4		1,307	—
Other operating income		15	120
Net operating income before change in expected credit losses and other credit impairment charges		10,807	7,952
Change in expected credit losses and other credit impairment charges		(421)	(482)
Net operating income		10,386	7,470
Employee compensation and benefits	3	(1,007)	(1,079)
General and administrative expenses		(2,265)	(2,271)
Depreciation and impairment of property, plant and equipment and right-of-use assets		(116)	(164)
Amortisation and impairment of intangible assets		(319)	(318)
Total operating expenses		(3,707)	(3,832)
Operating profit		6,679	3,638
Profit before tax		6,679	3,638
Tax expense	5	(1,425)	(762)
Profit for the year		5,254	2,876
Attributable to:
– shareholders of the parent company		5,249	2,871
– non-controlling interests		5	5
Profit for the year		5,254	2,876

1 Interest income recognised on financial assets measured at amortised cost is £12,478m (2022: £7,415m).

2 Interest income recognised on financial assets measured at FVOCI is £435m (2022: £166m).

3 Interest income calculated using the effective interest method comprises interest recognised on financial assets measured at either amortised cost or

fair value through other comprehensive income.

4 Provisional gain of £1,307m recognised in respect of the acquisition of SVB UK.


HSBC UK Bank plc Annual Report and Accounts 2023	77

Consolidated statement of comprehensive income


for the year ended 31 December
	2023	2022
	£m	£m
Profit for the year	5,254	2,876
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	66	(300)
– fair value gains/(losses)	16	(385)
– fair value (gains)/losses transferred to the income statement on disposal	66	(37)
– expected credit recoveries recognised in the income statement	—	(1)
– income taxes	(16)	123
Cash flow hedges	1,031	(1,234)
– fair value gains/(losses)	548	(1,884)
– fair value losses reclassified to the income statement	884	180
– income taxes	(401)	470
Exchange differences	8	(2)
– other exchange differences	8	(2)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/liability	(128)	(1,023)
– before income taxes	(176)	(1,603)
– income taxes1	48	580
Other comprehensive income/(expense) for the year, net of tax	977	(2,559)
Total comprehensive income for the year	6,231	317
Attributable to:
– shareholders of the parent company	6,226	312
– non-controlling interests	5	5
Total comprehensive income for the year	6,231	317

1There is an income tax credit of £48m (2022: credit £580m). 2022 includes an income tax credit of £134m arising upon the remeasurement of

deferred tax following the substantive enactment of legislation to reduce the UK banking surcharge rate from 8% to 3% with effect from 1 April

2023.

Financial statements


78	HSBC UK Bank plc Annual Report and Accounts 2023

Consolidated balance sheet


at 31 December
		2023	2022
	Notes	£m	£m
Assets
Cash and balances at central banks		65,719	94,407
Items in the course of collection from other banks		284	353
Financial assets mandatorily measured at fair value through profit or loss	7	135	108
Derivatives	9	178	546
Loans and advances to banks		7,980	6,357
Loans and advances to customers		211,887	204,143
Reverse repurchase agreements – non-trading		7,686	7,406
Financial investments	10	26,315	16,092
Prepayments, accrued income and other assets	16	8,321	8,762
Interests in joint ventures	12	8	9
Goodwill and intangible assets	15	4,363	4,258
Total assets		332,876	342,441
Liabilities and equity
Liabilities
Deposits by banks		10,843	10,721
Customer accounts		268,345	281,095
Repurchase agreements – non-trading		4,652	9,333
Items in the course of transmission to other banks		411	308
Derivatives	9	108	304
Debt securities in issue	17	1,988	1,299
Accruals, deferred income and other liabilities	18	4,124	3,543
Current tax liabilities		276	173
Provisions	19	350	424
Deferred tax liabilities	5	1,111	666
Subordinated liabilities	20	14,598	12,349
Total liabilities		306,806	320,215
Equity
Called up share capital	23	—	—
Share premium account	23	9,015	9,015
Other equity instruments	23	2,196	2,196
Other reserves		7,226	6,121
Retained earnings		7,573	4,834
Total shareholders’ equity		26,010	22,166
Non-controlling interests		60	60
Total equity		26,070	22,226
Total liabilities and equity		332,876	342,441

The accompanying notes on pages 85 to 125 and the audited sections in: the 'Financial summary' on pages 9 to 12 and the ‘Report of the

Directors’ on pages 15 to 68 form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 20 February 2024 and signed on its behalf by:

John David Stuart

Director


HSBC UK Bank plc Annual Report and Accounts 2023	79

Consolidated statement of changes in equity


for the year ended 31 December
				Other reserves
	Called up share capital and share premium	Other equity instru- ments	Retained earnings	Financial assets at FVOCI reserve	Cash flow hedging reserve	Group re- organisa- tion reserve2	Total share- holders’ equity	Non- controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	9,015	2,196	4,834	(246)	(1,324)	7,691	22,166	60	22,226
Profit for the year	—	—	5,249	—	—	—	5,249	5	5,254
Other comprehensive income (net of tax)	—	—	(128)	74	1,031	—	977	—	977
– debt instruments at fair value through other comprehensive income	—	—	—	66	—	—	66	—	66
– cash flow hedges	—	—	—	—	1,031	—	1,031	—	1,031
– remeasurement of defined benefit asset/ liability	—	—	(128)	—	—	—	(128)	—	(128)
– exchange differences	—	—	—	8	—	—	8	—	8
Total comprehensive income for the year	—	—	5,121	74	1,031	—	6,226	5	6,231
Dividends to shareholders	—	—	(2,411)	—	—	—	(2,411)	(5)	(2,416)
Other movements1	—	—	29	—	—	—	29	—	29
At 31 Dec 2023	9,015	2,196	7,573	(172)	(293)	7,691	26,010	60	26,070

At 1 Jan 2022	9,015	2,196	4,877	56	(90)	7,691	23,745	60	23,805
Profit for the year	—	—	2,871	—	—	—	2,871	5	2,876
Other comprehensive income (net of tax)	—	—	(1,023)	(302)	(1,234)	—	(2,559)	—	(2,559)
– debt instruments at fair value through other comprehensive income	—	—	—	(300)	—	—	(300)	—	(300)
– cash flow hedges	—	—	—	—	(1,234)	—	(1,234)	—	(1,234)
– remeasurement of defined benefit asset/ liability	—	—	(1,023)	—	—	—	(1,023)	—	(1,023)
– exchange differences	—	—	—	(2)	—	—	(2)	—	(2)
Total comprehensive income for the year	—	—	1,848	(302)	(1,234)	—	312	5	317
Dividends to shareholders	—	—	(1,929)	—	—	—	(1,929)	(5)	(1,934)
Other movements1	—	—	38	—	—	—	38	—	38
At 31 Dec 2022	9,015	2,196	4,834	(246)	(1,324)	7,691	22,166	60	22,226

1Relates to £5m pension assets transfer from HSBC Global Services (UK) Limited and HSBC Bank plc (2022: £9m) and share based payments cost of

£24m in 2023 (2022: £29m).

2The Group reorganisation reserve is an equity reserve which was used to recognise the contribution of equity reserves associated with the ring

fenced businesses that were notionally transferred from HSBC Bank plc.

Financial statements


80	HSBC UK Bank plc Annual Report and Accounts 2023

Consolidated statement of cash flows


for the year ended 31 December
	2023	2022
	£m	£m
Profit before tax	6,679	3,638
Adjustments for non-cash items:
Depreciation, amortisation and impairment	435	482
Net gain from investing activities	79	(37)
Provisional gain on acquisition of SVB UK	(1,307)	—
Change in expected credit losses gross of recoveries and other credit impairment charges	472	575
Provisions including pensions	(233)	(78)
Share-based payment expense	19	17
Other non-cash items included in profit before tax	(149)	(204)
Elimination of exchange differences1	332	1,032
Changes in operating assets and liabilities
Change in net trading securities and derivatives	1,615	(2,174)
Change in loans and advances to banks and customers	(2,773)	(9,182)
Change in reverse repurchase agreements – non-trading	(264)	894
Change in financial assets mandatorily measured at fair value	(27)	(29)
Change in other assets	114	(2,219)
Change in deposits by banks and customer accounts	(20,028)	(1,234)
Change in repurchase agreements – non-trading	(5,086)	(1,104)
Change in debt securities in issue	689	399
Change in other liabilities	605	1,052
Contributions paid to defined benefit plans	(17)	(21)
Tax paid	(1,182)	(1,499)
Net cash from operating activities	(20,027)	(9,692)
Purchase of financial investments	(17,640)	(10,386)
Proceeds from the sale and maturity of financial investments	10,222	8,571
Proceeds from sale of property, plant and equipment	67	39
Purchase of property, plant and equipment	(45)	(80)
Purchase of intangible assets	(325)	(382)
Net cash flow from acquisition of SVB UK	1,023	—
Net cash from investing activities	(6,698)	(2,238)
Subordinated loan capital issued2	2,250	—
Dividends paid to shareholders of the parent company and non-controlling interests	(2,416)	(1,934)
Net cash from financing activities	(166)	(1,934)
Net decrease in cash and cash equivalents	(26,891)	(13,864)
Cash and cash equivalents at 1 Jan	100,319	114,134
Exchange differences in respect of cash and cash equivalents	(47)	49
Cash and cash equivalents at 31 Dec3	73,381	100,319
Cash and cash equivalents comprise:
– cash and balances at central banks	65,719	94,407
– items in the course of collection from other banks	284	353
– loans and advances to banks of one month or less	6,948	5,285
– reverse repurchase agreements with banks of one month or less	328	312
– treasury bills, other bills and certificates of deposit less than three months	503	268
– cash collateral and net settlement accounts	10	2
– less: items in the course of transmission to other banks	(411)	(308)
Cash and cash equivalents at 31 Dec3	73,381	100,319

Interest received was £12,389m (2022: £7,054m) and interest paid was £4,607m ( 2022: £1,172m).

1Adjustment 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.

2Subordinated liabilities changes during the year are attributable to cash flows from issuance of securities of £2,250m (2022: £nil) and repayments of

£nil (2022: £nil ). Non-cash changes during the year included foreign exchange gain/losses of £277m (2022: £556m).

3At 31 December 2023 6,770m (2022: £4,700m) was not available for use by the group, £6,600m (2022: £4,700) related to mandatory deposits at

central banks.


HSBC UK Bank plc Annual Report and Accounts 2023	81

HSBC UK Bank plc balance sheet


at 31 December
		2023	2022
	Notes	£m	£m
Assets
Cash and balances at central banks		65,719	94,407
Items in the course of collection from other banks		96	154
Financial assets mandatorily measured at fair value through profit or loss	7	135	108
Derivatives	9	175	546
Loans and advances to banks		13,642	9,304
Loans and advances to customers		201,014	199,666
Reverse repurchase agreements – non-trading		7,686	7,406
Financial investments	10	26,104	16,092
Investments in subsidiaries	13	918	1,010
Prepayments, accrued income and other assets	16	8,117	8,527
Interests in joint ventures	12	5	5
Goodwill and intangible assets	15	1,201	1,185
Total assets		324,812	338,410
Liabilities and equity
Liabilities
Deposits by banks		14,120	11,619
Customer accounts		262,342	279,575
Repurchase agreements – non-trading		4,652	9,333
Items in the course of transmission to other banks		408	304
Derivatives	9	108	304
Debt securities in issue	17	1,564	1,091
Accruals, deferred income and other liabilities	18	3,802	3,330
Current tax liabilities		175	135
Provisions	19	327	386
Deferred tax liabilities	5	1,151	690
Subordinated liabilities	20	14,598	12,349
Total liabilities		303,247	319,116
Equity
Called up share capital	23	—	—
Share premium account	23	9,015	9,015
Other equity instruments	23	2,196	2,196
Other reserves		4,777	3,678
Retained earnings		5,577	4,405
Total equity		21,565	19,294
Total liabilities and equity		324,812	338,410

Profit after tax for the year was £3,683m (2022: £2,882m).

The accompanying notes on pages 85 to 125, and the audited sections of the ‘Report of the Directors’ on pages 15 to 68 form an integral part

of these financial statements.

These financial statements were approved by the Board of Directors on 20 February 2024 and signed on its behalf by:

John David Stuart

Director

Financial statements


82	HSBC UK Bank plc Annual Report and Accounts 2023

HSBC UK Bank plc statement of changes in equity


for the year ended 31 December
				Other reserves
	Called up share capital and share premium	Other equity instruments	Retained earnings	Financial assets at FVOCI reserve	Cash flow hedging reserve	Group re- organisation2 reserve	Total share- holders’ equity
	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2023	9,015	2,196	4,405	(246)	(1,324)	5,248	19,294
Profit for the year	—	—	3,683	—	—	—	3,683
Other comprehensive expense (net of tax)	—	—	(128)	68	1,031	—	971
– debt instruments at fair value through other comprehensive income	—	—	—	60	—	—	60
– cash flow hedges	—	—	—	—	1,031	—	1,031
– remeasurement of defined benefit asset/ liability	—	—	(128)	—	—	—	(128)
– exchange differences	—	—	—	8	—	—	8
Total comprehensive income for the year	—	—	3,555	68	1,031	—	4,654
Dividends to shareholders	—	—	(2,411)	—	—	—	(2,411)
Other movements1	—	—	29	—	—	—	29
At 31 Dec 2023	9,015	2,196	5,578	(178)	(293)	5,248	21,566

At 1 Jan 2022	9,015	2,196	4,438	56	(90)	5,248	20,863
Profit for the year	—	—	2,882	—	—	—	2,882
Other comprehensive income (net of tax)	—	—	(1,023)	(302)	(1,234)	—	(2,559)
– debt instruments at fair value through other comprehensive income	—	—	—	(300)	—	—	(300)
– cash flow hedges	—	—	—	—	(1,234)	—	(1,234)
– remeasurement of defined benefit asset/ liability	—	—	(1,023)	—	—	—	(1,023)
– exchange differences	—	—	—	(2)	—	—	(2)
Total comprehensive income for the year	—	—	1,859	(302)	(1,234)	—	323
Dividends to shareholders	—	—	(1,929)	—	—	—	(1,929)
Other movements1	—	—	37	—	—	—	37
At 31 Dec 2022	9,015	2,196	4,405	(246)	(1,324)	5,248	19,294

1Relates to £5m pension assets transfer from HSBC Global Services (UK) Limited and HSBC Bank plc (2022: £9m) and share based payments cost of

£24m in 2023 (2022: £28m).

2The Group reorganisation reserve is an equity reserve which was used to recognise the contribution of equity reserves associated with the ring

fenced businesses that were notionally transferred from HSBC Bank plc.


HSBC UK Bank plc Annual Report and Accounts 2023	83

HSBC UK Bank plc statement of cash flows


for the year ended 31 December
	2023	2022
	£m	£m
Profit before tax	4,978	3,599
Adjustments for non-cash items:
Depreciation, amortisation and impairment	411	473
Net gain from investing activities	165	(37)
Change in expected credit losses gross of recoveries and other credit impairment charges	380	457
Provisions including pensions	(224)	(93)
Share-based payment expense	19	16
Other non-cash items included in profit before tax	(149)	(204)
Elimination of exchange differences1	332	1,032
Changes in operating assets and liabilities
Change in net trading securities and derivatives	1,606	(2,174)
Change in loans and advances to banks and customers	(1,900)	(9,130)
Change in reverse repurchase agreements – non-trading	(264)	894
Change in financial assets mandatorily measured at fair value	(27)	(29)
Change in other assets	(146)	(2,188)
Change in deposits by banks and customer accounts	(14,733)	(924)
Change in repurchase agreements – non-trading	(4,683)	(1,104)
Change in debt securities in issue	473	416
Change in other liabilities	656	1,013
Contributions paid to defined benefit plans	(17)	(21)
Tax paid	(1,145)	(1,460)
Net cash from operating activities	(14,268)	(9,464)
Purchase of financial investments	(20,071)	(10,386)
Proceeds from the sale and maturity of financial investments	10,294	8,571
Proceeds from sale of property, plant and equipment	8	2
Purchase of property, plant and equipment	(42)	(66)
Purchase of intangible assets	(319)	(375)
Net cash from investing activities	(10,130)	(2,254)
Subordinated loan capital issued2	2,250	—
Dividends paid to shareholders of the parent company	(2,411)	(1,929)
Net cash from financing activities	(161)	(1,929)
Net decrease in cash and cash equivalents	(24,559)	(13,647)
Cash and cash equivalents at 1 Jan	100,516	114,114
Exchange differences in respect of cash and cash equivalents	(47)	49
Cash and cash equivalents at 31 Dec3	75,910	100,516
Cash and cash equivalents comprise:
– cash and balances at central banks	65,719	94,407
– items in the course of collection from other banks	96	154
– loans and advances to banks of one month or less	9,832	5,677
– reverse repurchase agreements with banks of one month or less	328	312
– treasury bills, other bills and certificates of deposit less than three months	333	268
– cash collateral and net settlement accounts	10	2
– less: items in the course of transmission to other banks	(408)	(304)
Cash and cash equivalents at 31 Dec3	75,910	100,516

Interest received was £11,673m (2022: £6,671m), interest paid was £4,554m (2022: £1,154m) and dividends received were £140m (2022:

£161m).

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

cannot be determined without unreasonable expense.

2Subordinated liabilities changes during the year are attributable to cash flows from issuance of securities of £2,250m (2022: £nil). Non-cash changes

during the year included foreign exchange gain/losses of £277m (2022: £556m).

3At 31 December 2023, £6,600m (2022: £4,700m) was not available for use by the bank, £6,600m (2022: £4,700m) related to mandatory deposits at

central banks.

Financial statements


84	HSBC UK Bank plc Annual Report and Accounts 2023

Notes on the financial statements


1	Basis of preparation and material accounting policies

1.1Basis of preparation

(a)Compliance with International Financial Reporting Standards

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

accounting standards and with the requirements of the Companies Act 2006. 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

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 Financial Reporting Advisory Group 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 exemption 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)Future accounting developments

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. The group

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

statements of the bank.

(c)Foreign currencies

The functional currency of the bank is sterling, which is also the presentational currency of the consolidated financial statements of

the group.

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.

(d)Presentation of information

Certain disclosures required by IFRS Accounting Standards have been included in the audited sections of this Annual Report and Accounts

2023 as follows:

– disclosures concerning the nature and extent of risks relating to financial instruments are included in the ‘Report of the Directors | Risk’ on

pages 15 to 62; and

– capital disclosures are included in the ‘Report of the Directors | Risk’ on pages 56 to 58.

In publishing the parent company financial statements together with the group financial statements, the bank has taken advantage of the

exemption in Section 408(3) of the Companies Act 2006 not to present its individual income statement and related notes.

(e)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 the group’s accounting policies that contain critical estimates and judgements

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

Management has considered the impact of climate-related risks on HSBC UK’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.

(f)Segmental analysis

HSBC UK's chief operating decision-maker is the group Chief Executive, supported by the group Executive Committee, and operating

segments are reported in a manner consistent with the internal reporting provided to the group Chief Executive and the group Executive

Committee.

Measurement of segmental assets, liabilities, income and expenses is in accordance with the group’s accounting policies. Segmental income

and expenses include transfers between segments and these transfers are conducted at arm’s length. Shared costs are included in segments

on the basis of the actual recharges made.


HSBC UK Bank plc Annual Report and Accounts 2023	85

The types of products and services from which each reportable segment derives its revenue are discussed in the ‘Strategic report | Our global

businesses’.

(g) Going concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the group and bank have the resources to

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

to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These

considerations include stressed scenarios that reflect the uncertainty in the macroeconomic environment following rising inflation and the

Russia-Ukraine and Israel-Hamas wars. They also considered other top and emerging risks, including climate change, as well as from the

related impacts on profitability, capital and liquidity.

1.2Summary of material accounting policies

(a)Consolidation and related policies

Investments in subsidiaries

Where an entity is governed by voting rights, the group consolidates when it holds, directly or indirectly, the necessary voting rights to pass

resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors,

including having exposure to variability of returns, power to direct relevant activities and whether power is held as agent or principal.

The bank's investments in subsidiaries are stated at cost less impairment losses.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the

consideration, including contingent consideration, given at the date of exchange. Acquisition-related costs are recognised as an expense in the

income statement in the period in which they are incurred. The acquired identifiable assets, liabilities and contingent liabilities are generally

measured at their fair value at the date of acquisition.

Goodwill is measured as the excess of the aggregate of the consideration transferred, the amount of non-controlling interest and the fair value

of HSBC UK's previously held equity interest, if any, over the net of the amounts of the identifiable assets acquired and the liabilities assumed.

Any gain resulting from a bargain purchase is recognised in the income statement.

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. The election is made for each business combination.

Goodwill

Goodwill is allocated to CGUs for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill is monitored for

internal management purposes. The group‘s CGUs are based on the business lines described in the Strategic Report. Impairment testing is

performed 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 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 the market implied cost of equity, which incorporates inputs reflecting a number of financial and economic variables, including the risk-free interest rate 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 impairment are described in Note 15.

The group does not consider there to be a significant risk of a material adjustment to the carrying amount of the goodwill balance in the next

financial year but does consider this to be an area that is inherently judgemental.

Interests in associates and joint arrangements

Joint arrangements are investments in which the group, together with one or more parties, has joint control. Depending on the group’s rights

and obligations, the joint arrangement is classified as either a joint operation or a joint venture. The group classifies investments in entities over

which it has significant influence, and that are neither subsidiaries nor joint arrangements, as associates.

The group 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 the group, 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. Goodwill on acquisition 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.

Notes on the financial statements


86	HSBC UK Bank plc Annual Report and Accounts 2023

(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 are recognised in ‘interest income’ and

‘interest expense’ in the income statement using the effective interest method.

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 ECL).

Non-interest income and expense

The group generates fee income from services provided over time, such as account service and card fees, or when it delivers a specific

transaction at a point in time, such as broking services and import/export services. With the exception of certain performance fees, all other

fees are generated at a fixed price. Fund management and performance fees can be variable depending on the size of the customer portfolio

and the group’s performance as fund manager. Variable fees are recognised when all uncertainties are resolved. Fee income is generally

earned from short-term contracts with payment terms that do not include a significant financing component.

The group acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades, the

group acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.

The group recognises fees earned on transaction-based arrangements at a point in time when it has fully provided the service to the customer.

Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the agreement.

Where the group offers a package of services that contains multiple non-distinct performance obligations, such as those included in account

service packages, the promised services are treated as a single performance obligation. If a package of services contains distinct performance

obligations, such as those including both account and insurance services, the corresponding transaction price is allocated to each performance

obligation based on the estimated stand-alone selling prices.

Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and

usually the date when shareholders approve the dividend for unlisted equity securities.

The group buys and sells currencies to customers, as principal and presents the results of this activity, including the related gains and losses

from changes in foreign exchange rates, as trading.

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.

– ‘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 SPPI test, see (d).

(c)Valuation of financial instruments

All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial

recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference

between the transaction price and the fair value of financial instruments whose fair value is based on a quoted price in an active market or a

valuation technique that uses only data from observable markets, the group recognises the difference as a trading gain or loss at inception

(a ‘day 1 gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the

transaction either until the transaction matures or is closed out or the valuation inputs become observable.

The fair value of financial instruments is generally measured on an individual basis. Financial instruments are classified into one of three fair

value hierarchy levels, described in Note 7, ‘Fair values of financial instruments carried at fair value’.

(d) Financial instruments measured at amortised cost

Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates to cash

flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets include most loans and advances

to banks and customers and some debt securities. In addition, most financial liabilities are measured at amortised cost. The group accounts for

regular way amortised cost financial instruments using trade date accounting. The carrying value of these financial assets at initial recognition

includes any directly attributable transactions costs.

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.

Finance lease receivables

Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets are classified as

finance leases. They are recorded at an amount equal to the net investment in the lease, less any impairment allowance. The net investment in

finance leases represents the sum of the minimum payments receivable (gross investment in the lease) discounted at the rate of interest

implicit in the lease. Initial direct costs incurred in arranging the lease, less any fee income related to the lease, are included in the initial

measurement of the net investment.


HSBC UK Bank plc Annual Report and Accounts 2023	87

(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 FVOCI.

These comprise primarily debt securities. They are recognised on the trade date when the group 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) are 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) 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.

Hedge accounting

When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge

accounting relationships where the required criteria for documentation and hedge effectiveness are met. The group uses these derivatives or,

where allowed, other non-derivative hedging instruments in fair value hedges or cash flow hedges 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.

(g)Impairment of amortised cost and FVOCI financial assets

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’. POCI are treated differently as set out

below.

Credit impaired (stage 3)

The group determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily whether

contractual payments of either principal or interest are past due for more than 90 days, there are other indications that the borrower is unlikely

to pay such as that a concession has been granted to the borrower for economic or legal reasons relating to the borrower’s financial condition,

or the loan is otherwise considered to be in default.

If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due. Therefore, the

definitions of credit impaired and default are aligned as far as possible so that stage 3 represents all loans that are considered defaulted or

otherwise credit impaired.

Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less allowance for

ECL.

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 UK modifies the contractual terms due to

financial difficulty of the borrower. Non-performing forborne loans are stage 3 and classified as non-performing until they meet the cure criteria,

as specified by applicable credit risk policy (for example, when the loan is no longer in default and no other indicators of default have been

present for at least 12 months). Any amount written off as a result of any modification of contractual terms upon entering forbearance would

not be reversed.

Notes on the financial statements


88	HSBC UK Bank plc Annual Report and Accounts 2023

The group applies the EBA Guidelines on the application of definition of default for our retail portfolios, which affects credit risk policies and our

reporting in respect of the status of loans as credit impaired principally due to forbearance (or curing thereof). Further details are provided under

'Forborne loans and advances' on page 25.

Performing forborne loans are initially stage 2 and remain classified as forborne until they meet applicable cure criteria (for example, they

continue to not be in default and no other indicators of default are present for a period of at least 24 months). At this point, the loan is either

stage 1 or stage 2 as determined by comparing the risk of a default occurring at the reporting date (based on the modified contractual terms)

and the risk of a default occurring at initial recognition (based on the original, unmodified contractual terms).

A forborne loan is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the

terms of an existing agreement are modified such that the forborne loan is a substantially different financial instrument. Any new loans that

arise following derecognition events in these circumstances would generally be classified as POCI and will continue to be disclosed as

forborne.

Loan modifications other than forborne loans

Loan modifications that are not identified as forborne are considered to be commercial restructuring. 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 UK

rights to the cash flows under the original contract have expired, the old loan is derecognised and the new loan is recognised at fair value. The

rights to cash flows are generally considered to have expired if the commercial restructure is at market rates and no payment-related

concession has been provided. Modifications of certain higher credit risk wholesale loans are assessed for derecognition having regard to

changes in contractual terms that either individually or in combination are judged to result in a substantially different financial instrument.

Changes to current market rates are not treated as modifications when they were contemplated at initial recognition, but rather a repricing.

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. 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 PD which encompasses a wide range of information

including the obligor’s CRR, macro-economic 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 that increases by
0.1-1.2	15 bps
2.1-3.3	30 bps

For CRRs greater than 3.3 that are not impaired, a significant increase in credit risk is considered to have occurred when the origination PD has

doubled. The significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit migrations and to

relative changes in external market rates.

For loans originated prior to the implementation of 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 24 – Risk rating scales.

For Retail portfolios, default risk is assessed using a reporting date 12-month PD derived from internally developed statistical 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


HSBC UK Bank plc Annual Report and Accounts 2023	89

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, noting this approach is currently applied to the mortgage portfolio. 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, the group calculates ECL using three main components: a PD, a LGD and the EAD.

The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead. The

12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the instrument

respectively.

The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to

the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the EAD given the

event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is expected to be realised and

the time value of money.

The group makes use of the 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
PD	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 Basel II 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 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 workout 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 the group is exposed to credit risk. However, where the financial

Notes on the financial statements


90	HSBC UK Bank plc Annual Report and Accounts 2023

instrument includes both a drawn and undrawn commitment and the contractual ability to demand repayment and cancel the undrawn

commitment does not serve to limit the group’s exposure to credit risk to the contractual notice period, the contractual period does not

determine the maximum period considered. Instead, ECL is measured over the period the group remains exposed to credit risk that is not

mitigated by credit risk management actions. This applies to retail overdrafts and credit cards, where the period is the average time taken for

stage 2 exposures to default or close as performing accounts, determined on a portfolio basis and ranging from between two and six years. In

addition, for these facilities it is not possible to identify the ECL on the loan commitment component separately from the financial asset

component. As a result, the total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying

amount of the financial asset, in which case the ECL is recognised as a provision. For wholesale overdraft facilities, credit risk management

actions are taken no less frequently than on an annual basis.

Forward-looking economic inputs

The group applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions

representative of its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected credit loss in

most economic environments. In certain economic environments, additional analysis may be necessary and may result in additional scenarios

or adjustments, to reflect a range of possible economic outcomes sufficient for an unbiased estimate. The detailed methodology is disclosed in

'Measurement uncertainty and sensitivity analysis of ECL estimates' on page 32.

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 judgemental 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 on pages 32 to 36, 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.

(h)Employee compensation and benefits

Share-based payments

The group 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

The group operates a pension plan which provides defined benefit and defined contribution pensions.

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 policy

(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 accounting estimates relate to the determination of key assumptions applied in calculating the defined benefit pension obligation.
Judgements	Estimates
	– A range of assumptions could be applied, and different assumptions could significantly alter the defined benefit obligation and the amounts recognised in OCI or profit or loss. – 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 and the sensitivity of the calculation to different assumptions are described in Note 3.


HSBC UK Bank plc Annual Report and Accounts 2023	91

(i)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 in which the

related item appears.

Current tax is the tax expected to be payable on the taxable profit for the year and on any adjustment to tax payable in respect of previous

years. The group provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax

authorities.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the

amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods

as the assets will be realised or the liabilities settled.

Current and deferred tax are calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.

(j)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.

(k)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.

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 values 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 15).

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 loss recognised in prior periods for non-financial assets is reversed when there has been a change in the estimate used to

determine the recoverable amount. The impairment loss is reversed to the extent that the carrying amount of the non-financial assets would

not exceed the amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in prior

periods.

Notes on the financial statements


92	HSBC UK Bank plc Annual Report and Accounts 2023


2	Net fee income


	Year ended
	31 Dec	31 Dec
	2023	2022
Net fee income by product	£m	£m
Account services	272	257
Funds under management	120	114
Cards	582	580
Credit facilities	147	130
Imports/exports	28	30
Insurance agency commission	11	25
Receivables finance	86	96
Other	308	261
Fee income	1,554	1,493
Less: fee expense	(270)	(248)
Net fee income	1,284	1,245
Net fee income by global business
Wealth and Personal Banking	588	590
Commercial Banking	922	879
Global Banking and Markets	(224)	(222)
Corporate Centre	(2)	(2)

Net fee income includes £1,204m of fees earned on financial assets that are not at fair value through profit or loss (other than amounts

included in determining the effective interest rate) (2022: £1,129m), £199m of fees payable on financial liabilities that are not at fair value

through profit of loss (other than amounts included in determining the effective interest rate) (2022: £174m), £124m of fees earned on trust and

other fiduciary activities (2022: £118m).


3	Employee compensation and benefits


	2023	2022
	£m	£m
Wages and salaries	1,025	971
Social security costs	113	106
Post-employment benefits1	(131)	2
Year ended 31 Dec	1,007	1,079

1 Post-employment benefits increase/decrease is a factor of interest receivable on assets, service cost, interest cost on liabilities and administration

expenses.


Average number of persons employed by the group during the year
	20231	20221
Wealth and Personal Banking	15,549	15,923
Commercial Banking	4,796	4,491
Global Banking and Markets	60	54
Corporate Centre	10	33
Year ended 31 Dec	20,415	20,501

1 Average number of headcount staff in corporate centre are allocated to the respective global businesses. The allocation is on the basis of amounts

charged to the respective global business.

Share-based payments

The share-based payment income statement charge is recognised in wages and salaries as follows:


	2023	2022
	£m	£m
Restricted share awards	10	8
Savings-related and other share award option plans	9	9
Year ended 31 Dec	19	17


HSBC UK Bank plc Annual Report and Accounts 2023	93


HSBC Group share awards
Award	Policy
Deferred share awards (including annual incentive awards, LTI awards delivered in shares) and GPSP	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. – Deferred share awards generally vest over a period of three, five or seven years. – Vested shares may be subject to a retention requirement post-vesting. – Awards are 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 31 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. – 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 Group share awards
	2023	2022
	Number	Number
	(000s)	(000s)
Restricted share awards outstanding at 1 Jan	2,981	2,457
Additions during the year	1,826	1,976
Released in the year	(1,582)	(1,404)
Forfeited in the year	(142)	(48)
Restricted share awards outstanding at 31 Dec	3,083	2,981
Weighted average fair value of awards granted (£)	5.55	4.03


HSBC Group share option plans
Plans	Policy
Savings-related share option plans (‘Sharesave’)	– Eligible employees can 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 Group share option plans
	Savings-related share option plans
	Number	WAEP1
	(000s)	£
Outstanding at 1 Jan 2023	60,350	2.85
Granted during the year	11,496	4.76
Exercised during the year	(26,249)	2.71
Expired during the year	(658)	4.76
Forfeited during the year	(2,261)	3.32
Outstanding at 31 Dec 2023	42,678	3.44
– of which exercisable	3,527	2.68
Weighted average remaining contractual life (years)	2.44


Outstanding at 1 Jan 2022	64,073	2.85
Granted during the year	4,523	4.30
Exercised during the year	(1,517)	3.56
Expired during the year	(1,360)	4.95
Forfeited during the year	(5,369)	2.94
Outstanding at 31 Dec 2022	60,350	2.88
– of which exercisable	1.761	4.35
Weighted average remaining contractual life (years)	2.23

1Weighted average exercise price.

Notes on the financial statements


94	HSBC UK Bank plc Annual Report and Accounts 2023

Post-employment benefit plans

We operate a pension plan for our employees called the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the plan’), which has both

defined benefit and defined contribution sections, managed by the Trustee of the plan. The HSBC Bank (UK) Pension Scheme was fully

sectionalised in 2018 to meet the requirements of the Banking Reform Act.

The Pension risk section on page 56 contains details about the policies and practices associated with the plan. Climate-related risks on page 19

provides details of how the trustee of our employee pension plan, the HSBC Bank (UK) Pension Scheme, manages climate risk.

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 the HSBC Group. 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. For further details of the measures to manage the market volatility, see Treasury risk on page 52.

The 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 and this exceeded the value placed on its liabilities on an ongoing basis by £2.5bn, giving a funding level of 109%. These figures

include defined contribution assets amounting to £2.4bn. 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 main differences between the assumptions used for

assessing the liabilities for this funding valuation and those used for IAS19 are that an element of prudence is contained in the funding

assumptions for discount rate, inflation rate and life expectancy. The next funding valuation was scheduled to be performed in 2023, with an

effective date 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 funding liabilities as at end 2023, 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 HBUK section of 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 assumptions which allow for reserves and include a more prudent allowance for the future

administrative expenses of the plan. Under this approach, the amount of assets needed was estimated to be £33bn 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.


Income statement charge/(credit)
	2023	2022
	£m	£m
Defined benefit pension plans	(241)	(95)
Defined contribution pension plans	110	97
Pension plans	(131)	2
Year ended 31 Dec	(131)	2

Defined benefit pension plans


Net asset/(liability) under defined benefit pension plans
	Fair value of plan assets	Present value of defined benefit obligations	Net defined benefit assets/(liabilities)
	£m	£m	£m
At 1 Jan 2023	20,853	(15,596)	5,257
Service cost	—	(8)	(8)
– current service cost	—	(11)	(11)
– past service cost	—	3	3
Net interest income/(cost) on the net defined benefit asset/(liability)	1,003	(744)	259
Remeasurement effects recognised in other comprehensive income	(181)	6	(175)
– return on plan assets (excluding interest income)	(181)	—	(181)
– actuarial gains/(losses) financial assumptions	—	(98)	(98)
– actuarial gains/(losses) demographic assumptions	—	287	287
– actuarial gains/(losses) experience adjustments	—	(183)	(183)
Transfers to/from the scheme	30	(25)	5
Benefits paid	(855)	855	—
Other movements1	1	(2)	(1)
At 31 Dec 2023	20,851	(15,514)	5,337


HSBC UK Bank plc Annual Report and Accounts 2023	95


Net asset/(liability) under defined benefit pension plans (continued)
	Fair value of plan assets	Present value of defined benefit obligations	Net defined benefit assets/ (liabilities)
	£m	£m	£m
At 1 Jan 2022	30,578	(23,833)	6,745
Service cost	—	(25)	(25)
– current service cost	—	(10)	(10)
– past service cost	—	(15)	(15)
Net interest income/(cost) on the net defined benefit asset/(liability)	571	(443)	128
Remeasurement effects recognised in other comprehensive income	(9,343)	7,740	(1,603)
– return on plan assets (excluding interest income)	(9,343)	—	(9,343)
– actuarial gains/(losses) financial assumptions	—	8,561	8,561
– actuarial gains/(losses) demographic assumptions	—	(100)	(100)
– actuarial gains/(losses) experience adjustments	—	(721)	(721)
Transfers to/from the scheme	36	(27)	9
Benefits paid	(992)	992	—
Other movements1	3	—	3
At 31 Dec 2022	20,853	(15,596)	5,257

1Other movements of Fair value of plan assets includes contributions by HSBC UK of £17m (2022: £20m), less administrative costs £16m (2022:

£17m). Other movements of Present value of defined benefit obligations includes the adjustment on administrative cost paid lower than expected

incurred of £2m (2022: Nil).

Benefits expected to be paid from the plan 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 plan
	2024	2025	2026	2027	2028	2029–2033
	£m	£m	£m	£m	£m	£m
The plan1	882	910	938	968	998	5,480

1The duration of the defined benefit obligation is 12.9 years under the disclosure assumptions adopted (2022: 13.2 years).


Fair value of plan assets by asset classes
	At 31 Dec 2023			At 31 Dec 2022
	Value	Quoted market price in active market	No quoted market price in active market	Value	Quoted market price in active market	No quoted market price in active market
	£m	£m	£m	£m	£m	£m
The plan
Fair value of plan assets	20,851	11,768	9,083	20,853	11,550	9,303
– equities1	65	—	65	93	—	93
– bonds fixed income2	4,126	3,716	410	4,386	4,002	384
– bonds index linked	8,077	8,077	—	7,869	7,869	—
– derivatives	832	—	832	998	—	998
– property	651	—	651	700	—	700
– pooled investment vehicles	7,125	—	7,125	7,128	—	7,128
– other	(25)	(25)	—	(321)	(321)	—

1 Includes £65m (2022: £93m) in relation to private equities.

2 Bonds fixed income, includes £(838)m (2022: £(705)m) in relation to repurchase agreements.

Post-employment defined benefit plan actuarial financial assumptions

HSBC UK determines the discount rates to be applied to its obligations in consultation with the plan's 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 plan
	Discount rate	Inflation rate (RPI)	Inflation rate (CPI)	Rate of increase for pensions	Rate of pay increase
	%	%	%	%	%
UK
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

Notes on the financial statements


96	HSBC UK Bank plc Annual Report and Accounts 2023


Mortality tables and average life expectancy at age 60 for the plan
	Mortality table	Life expectancy at age 60 for a male member currently:		Life expectancy at age 60 for a female member currently:
	Mortality table	Aged 60	Aged 40	Aged 60	Aged 40
UK
At 31 Dec 2023	SAPS S31	26.2	27.7	28.3	29.8
At 31 Dec 2022	SAPS S31	27.1	28.6	28.4	29.9

1 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

and a 0% weighting to 2020 and 2021, 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 plan
	Impact on 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%	(470)	(483)	495	509
Inflation rate (RPI/CPI) – increase/decrease of 0.25%	392	387	(390)	(371)
Pension payments and deferred pensions – increase/decrease of 0.25%	488	457	(463)	(431)
Pay – increase/decrease of 0.25%	6	8	(5)	(8)
Change in mortality – increase/decrease of 1 year	481	390	(481)	(405)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this in 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 to the prior period.

Directors’ emoluments

The aggregate emoluments of the Directors of the Company, computed in accordance with the Companies Act 2006 as amended by statutory

instrument 2008 No. 410, were:


	2023	2022
	£000	£000
Fees paid to non-executive Directors	1,519	1,406
Salaries and other emoluments1	2,559	2,418
Annual incentives2	1,362	1,160
Long-term incentives3	1,013	781
Year ended 31 Dec	6,453	5,765

1Salaries and other emoluments include Fixed Pay Allowances.

2Discretionary annual incentives for the Executive Directors are based on a combination of individual and corporate performance and are determined

by the Remuneration Committee of the Company’s ultimate parent company, HSBC Holdings plc. Incentive awards made to Executive Directors are

delivered in the form of cash and HSBC Holdings plc shares. The total amount shown is comprised of £681,040 (2022: £580,071) in cash and

£681,040 (2022: £580,071) in Restricted Shares, which is the upfront portion of the annual incentive granted in respect of performance year 2023.

3The amount shown is comprised of £416,869 (2022: £364,848) in deferred cash and £595,927 (2022: £416,541) in deferred Restricted Shares. These

amounts relate to the portion of the awards that will vest following the substantial completion of the vesting condition attached to these awards in

2023. The total deferral period of deferred cash and share awards is no less than five years up to a maximum of seven years. Grants with a five-year

deferral vest in five equal tranches on each anniversary of the grant date on a pro-rate basis. Grants with a seven-year deferral vest in five equal

tranches on each anniversary from the third anniversary of the grant date on a pro-rata basis. The deferral periods and pro-rata calculations are in line

with the requirements set out in the Remuneration rules applicable to Material Risk Takers. The share awards are subject to a retention period of six

months to one year upon vesting. Details of the Plans are contained within the Directors’ Remuneration Report of HSBC Holdings plc.

One Director exercised share options over HSBC Holdings plc ordinary shares during the year (2022: no Directors).

Awards were made to 2 Directors under HSBC Holdings plc long-term incentive plans in respect of qualifying services rendered in 2023

(2022: 2). During 2023, 2 Directors received shares in respect of awards in HSBC Holdings plc long-term incentive plans that vested during the

year (2022: 2).

Retirement benefits accrued to 1 Director during the year in respect of their qualifying services (2022: 1 Director). No Directors received cash in

lieu of pension contributions during the year in respect of their qualifying services (2022: no Directors). Cash received in lieu of pension is

included in the salary and other emoluments disclosure in the table above.


HSBC UK Bank plc Annual Report and Accounts 2023	97

Of these aggregate figures, the following amounts are attributable to the highest paid Director:


	2023	2022
	£000	£000
Salaries and other emoluments	1,787	1,771
Annual incentives1	1,042	890
Long-term incentives2	876	602
Year ended 31 Dec	3,705	3,263

1Awards made to the highest paid Director are delivered in the form of cash and HSBC Holdings plc shares. The amount shown is comprised of

£521,040 (2022: £445,071) in cash and £521,040 (2022: £445,071) in Restricted Shares.

2The amount shown is comprised of £362,179 (2022: £294,214) in deferred cash and £514,297 (2022: £307,398) in deferred Restricted Shares.

These amounts represent a portion of the total award that will vest following satisfaction of the vesting condition attached to the 2023 awards.

The total period of deferral for these cash and share awards is seven years with pro-rata vesting in five equal tranches between the third and

seventh anniversary of the date granted. The vested share awards are then subject to a one-year retention period.

The highest paid Director received shares in respect of qualifying services under an HSBC Holdings plc long term incentive plan.

Pension contributions of £nil were made by the Company in respect of services by the highest paid Director during the year (2022: £nil).


4	Auditors’ remuneration


	2023	2022
	£m	£m
Audit fees payable to PwC	6.9	5.4
Assurance fees payable to PwC	2.3	2.8
Year ended 31 Dec	9.2	8.2


Fees payable by the group to PwC
	2023	2022
	£m	£m
Audit fees for HSBC UK Bank plc‘s statutory audit1	4.7	4.3
Fees for other services provided to the group	4.5	3.9
– audit of the group‘s subsidiaries	2.2	1.1
– audit-related assurance services2	2.2	1.9
– other assurance services3	0.1	0.9
Year ended 31 Dec	9.2	8.2

1 Fees payable to PwC for the statutory audit of the consolidated financial statements of the group and the separate financial statements of HSBC UK

Bank plc. They exclude amounts payable for the statutory audit of the bank’s subsidiaries which have been included in ‘Fees for other services

provided to the group’.

2 Including services for assurance and other services that relate to statutory and regulatory filings, including comfort letters and interim and quarterly

reviews.

3 Including comfort and arrangement letters to underwriters or other financial intermediaries and assurance reviews of PRA regulatory reporting

returns.

No fees were payable to PwC as principal auditor for the following types of services: internal audit services and services related to litigation,

recruitment and remuneration.

In addition to the above, the estimated fees paid to PwC by third parties associated with HSBC UK amounted to £2.2m (2022: £0.7m). In these

cases, HSBC UK was connected with the contracting party and may therefore have been involved in appointing PwC. These fees arose from

services such as reviewing the financial position of corporate concerns that borrow from HSBC UK.

Fees payable for non-audit services for HSBC UK Bank plc are not disclosed separately because such fees are disclosed on a consolidated basis

for the group.


5	Tax


Tax expense
	2023	2022
	£m	£m
Current tax	1,310	876
– for this year	1,320	880
– adjustments in respect of prior years	(10)	(4)
Deferred tax	115	(114)
– origination and reversal of temporary differences	122	52
– effect of changes in tax rates	(1)	(172)
– adjustments in respect of prior years	(6)	6
Year ended 31 Dec1	1,425	762

1 In addition to amounts recorded in the income statement, a tax charge of £369m (2022: credit of £1,173m) was recorded directly to equity.

Notes on the financial statements


98	HSBC UK Bank plc Annual Report and Accounts 2023

On 1 April 2023, the main rate of UK corporation tax increased from 19% to 25% and the UK banking surcharge rate decreased from 8% to

3%. The tax rate applying to HSBC UK Bank plc and its banking subsidiaries in 2023 was a blended rate of 27.75%, comprising 23.5% UK

corporation tax main rate plus 4.25% UK banking surcharge rate. The tax rate applicable for non-banking entities in 2023 was 23.5% (2022:

19%).

On 20 June 2023, legislation was substantively enacted in the UK, the jurisdiction of the entity’s ultimate parent entity, HSBC Holdings plc, to

introduce the ‘Pillar Two’ global minimum tax model rules of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), as

well as a 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 HSBC Holdings plc group’s operations in a jurisdiction, calculated based on principles set out in the OECD’s Pillar Two

model rules, is below 15%. Based on the Group’s forecasts, no top-up tax liability is expected to arise in respect of the UK and therefore these

rules are not expected to affect HSBC UK Bank plc’s tax expense in future periods.

Tax reconciliation

The tax charged to the income statement differs from the tax expense that would apply if all profits had been taxed at the UK corporation tax

rate as follows:


	2023		2022
	£m	%	£m	%
Profit before tax	6,679		3,638
Tax expense
Taxation at UK corporation tax rate of 23.5% (2022: 19.00%)	1,570	23.5	691	19.0
Items increasing the tax charge in 2023:
– UK banking surcharge at 4.25% (2022: 8.00%)	277	4.1	278	7.6
– UK bank levy	14	0.2	9	0.2
– other permanent disallowables	5	0.1	4	0.1
Items decreasing tax charge in 2023:
– non-taxable gain on SVB UK acquisition	(361)	(5.4)	—	—
– deductions for AT1 coupon payments	(61)	(0.9)	(39)	(1.1)
– movement in uncertain tax positions	(15)	(0.2)	—	—
– non-deductible UK customer redress	(2)	(0.1)	(11)	(0.3)
– change in tax rates	(1)	—	(172)	(4.7)
– adjustments in respect of prior period liabilities	(1)	—	2	0.1
Year ended 31 Dec	1,425	21.3	762	20.9

The effective tax rate for the year was 21.3% (2022: 20.9%). The effective tax rate is reduced by 5.4% due to non-taxable provisional gain

arising on the acquisition of SVB UK in the period. The effective tax rate excluding this item is 26.7% and reflects the statutory blended tax rate

of 27.75%, tax relief on AT1 coupon payments and a tax credit from the release of provisions for uncertain tax positions. The effective tax rate

for 2022 was reduced by 4.7% by a credit arising from the remeasurement of the group's deferred tax balances following the substantive

enactment of legislation to reduce the UK banking surcharge rate from 8% to 3%, with effect from 1 April 2023. The effective tax rate

excluding this item in 2022 was 25.6%.


Movement of deferred tax assets and liabilities
	Loan impairment provisions	Cash flow hedges	FVOCI reserves	Defined benefit pension	Fixed and intangible assets	Other	Total
	£m	£m	£m	£m	£m	£m	£m
The group
At 1 Jan 2023	92	516	92	(1,472)	84	22	(666)
Income statement	(11)	—	(16)	(70)	(1)	(17)	(115)
Other comprehensive income	—	(401)	(24)	48	—	—	(377)
Acquisition of subsidiary	(7)	—	24	—	(25)	55	47
At 31 Dec 2023	74	115	76	(1,494)	58	60	(1,111)
Assets	74	115	76	—	58	60	383
Liabilities	—	—	—	(1,494)	—	—	(1,494)


At 1 Jan 2022	122	45	(26)	(2,226)	102	14	(1,969)
Income statement	(30)	—	—	174	(18)	(12)	114
Other comprehensive income	—	470	118	580	—	20	1,188
Other adjustments	—	1	—	—	—	—	1
At 31 Dec 2022	92	516	92	(1,472)	84	22	(666)
Assets	92	516	92	—	84	22	806
Liabilities	—	—	—	(1,472)	—	—	(1,472)


The bank
At 1 Jan 2023	85	516	89	(1,472)	68	24	(690)
Income statement	(17)	—	—	(70)	(1)	4	(84)
Other comprehensive income	—	(401)	(24)	48	—	—	(377)
At 31 Dec 2023	68	115	65	(1,494)	67	28	(1,151)
Assets	68	115	65	—	67	28	343
Liabilities	—	—	—	(1,494)	—	—	(1,494)


HSBC UK Bank plc Annual Report and Accounts 2023	99


Movement of deferred tax assets and liabilities (continued)
	Loan impairment provisions	Cash flow hedges	FVOCI reserves	Defined benefit pension	Fixed and intangible assets	Other	Total
	£m	£m	£m	£m	£m	£m	£m
At 1 Jan 2022	115	45	(29)	(2,226)	80	14	(2,001)
Income statement	(30)	—	—	174	(12)	(9)	123
Other comprehensive income	—	470	118	580	—	20	1,188
Other adjustments	—	1	—	—	—	(1)	—
At 31 Dec 2022	85	516	89	(1,472)	68	24	(690)
Assets	85	516	89	—	68	24	782
Liabilities	—	—	—	(1,472)	—	—	(1,472)

Management has assessed the likely availability of future taxable profits against which to recover the deferred tax assets of the bank and the

group, taking into consideration the reversal of existing taxable temporary differences, past business performance and forecasts of future

business performance. Management is satisfied that there is sufficient evidence to support recognition of all deferred tax assets.


6	Dividends

On 9 February 2024, the Directors resolved to pay an interim dividend of £1,412m to the ordinary shareholders of the parent company in

respect of the financial year ending 31 December 2023. No liability is recognised in the financial statements in respect of this dividend.


Dividends to the shareholder of the parent company
	2023		2022
	£ per share	£m	£ per share	£m
Dividends paid on ordinary shares
Interim dividend in respect of the previous year	10,779	539	9,820	491
Interim dividend in respect of the current year	33,159	1,658	25,919	1,296
Total	43,938	2,197	35,739	1,787


Total coupons on capital securities classified as equity
		2023	2022
	First call date	£m	£m
Undated Subordinated Additional Tier 1 instruments
– £1,096m	Dec 2019	106	70
– £1,100m	Dec 2024	108	72
Total		214	142


7	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 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.

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: financial instruments with quoted prices for identical instruments in active markets

that can be accessed at the measurement date.

– Level 2 – valuation technique using observable inputs: 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: financial instruments valued using valuation techniques where one or

more significant inputs are unobservable.

Notes on the financial statements


100	HSBC UK Bank plc Annual Report and Accounts 2023


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
The group	£m	£m	£m	£m	£m	£m	£m	£m
Recurring fair value measurements at 31 Dec
Assets
Financial assets mandatorily measured at fair value through profit or loss	89	—	46	135	72	—	36	108
Derivatives	2	173	3	178	14	532	—	546
Financial investments	14,284	212	—	14,496	10,757	175	—	10,932
Liabilities
Derivatives	—	108	—	108	—	304	—	304


The bank
Recurring fair value measurements at 31 Dec
Assets
Financial assets mandatorily measured at fair value through profit or loss	89	—	46	135	72	—	36	108
Derivatives	2	173	—	175	14	532	—	546
Financial investments	14,284	212	—	14,496	10,757	175	—	10,932
Liabilities
Derivatives	—	108	—	108	—	304	—	304

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. There were no transfers

between Level 1 and Level 2 during 2023 and 2022.

Fair value adjustments

Fair value adjustments are adopted when the group determines there are additional factors considered by market participants that are not

incorporated within the valuation model. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits

or losses within the income statement, such as when models are enhanced and therefore fair value adjustments may no longer be required.

Fair value valuation bases

Equities

The fair value of equity investment is estimated on the basis of an analysis of the investee’s financial position and results, risk profile, prospects

and other factors. If necessary, adjustments are made to the net asset value of funds to obtain the best estimate of fair value.


8	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
The group
At 31 Dec 2023
Assets
Loans and advances to banks	7,980	—	7,979	—	7,979
Loans and advances to customers	211,887	—	—	209,462	209,462
Reverse repurchase agreements – non-trading	7,686	—	7,686	—	7,686
Financial investments – at amortised cost	11,819	9,931	1,639	—	11,570
Liabilities
Deposits by banks	10,843	—	10,843	—	10,843
Customer accounts	268,345	—	268,345	—	268,345
Repurchase agreements – non-trading	4,652	—	4,652	—	4,652
Debt securities in issue	1,988	—	1,568	416	1,984
Subordinated liabilities	14,598	—	14,678	—	14,678

At 31 Dec 2022
Assets
Loans and advances to banks	6,357	—	6,357	—	6,357
Loans and advances to customers	204,143	—	—	199,957	199,957
Reverse repurchase agreements – non-trading	7,406	—	7,406	—	7,406
Financial investments – at amortised cost	5,160	4,772	—	—	4,772
Liabilities
Deposits by banks	10,721	—	10,721	—	10,721
Customer accounts	281,095	—	281,095	—	281,095
Repurchase agreements – non-trading	9,333	—	9,333	—	9,333
Debt securities in issue	1,299	—	1,094	185	1,279
Subordinated liabilities	12,349	—	11,765	—	11,765


HSBC UK Bank plc Annual Report and Accounts 2023	101


Fair values of financial instruments not carried at fair value and bases of valuation (continued)
		Fair value
	Carrying amount	Quoted market price Level 1	Observable inputs Level 2	Significant unobservable inputs Level 3	Total
	£m	£m	£m	£m	£m
The bank
At 31 Dec 2023
Assets
Loans and advances to banks	13,642	—	13,646	—	13,646
Loans and advances to customers	201,014	—	—	198,552	198,552
Reverse repurchase agreements – non-trading	7,686	—	7,686	—	7,686
Financial investments held at amortised cost	11,608	9,931	1,469	—	11,400
Liabilities
Deposits by banks	14,120	—	14,120	—	14,120
Customer accounts	262,342	—	262,342	—	262,342
Repurchase agreements – non-trading	4,652	—	4,652	—	4,652
Debt securities in issue	1,564	—	1,568	—	1,568
Subordinated liabilities	14,598	—	14,678	—	14,678

At 31 Dec 2022
Assets
Loans and advances to banks	9,304	—	9,296	—	9,296
Loans and advances to customers	199,666	—	—	195,606	195,606
Reverse repurchase agreements – non-trading	7,406	—	7,406	—	7,406
Financial investments held at amortised cost	5,160	4,772	—	—	4,772
Liabilities
Deposits by banks	11,619	—	11,619	—	11,619
Customer accounts	279,575	—	279,575	—	279,575
Repurchase agreements – non-trading	9,333	—	9,333	—	9,333
Debt securities in issue	1,091	—	1,094	—	1,094
Subordinated liabilities	12,349	—	11,765	—	11,765

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 and items in the course of

collection from and transmission to other banks, all of which are measured at amortised cost.

Valuation

Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date. It does not reflect the economic benefits and costs that the group expects to flow from an

instrument’s cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no

observable market prices are available may differ from those of other companies.

Loans and advances to banks and customers

To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar

characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated

using valuation models incorporating a range of input assumptions. These assumptions may include: forward-looking discounted cash flow

models, taking account of expected customer prepayment rates, using assumptions that HSBC UK believes are consistent with those that

would be used by market participants in valuing such loans; and new business rates estimates for similar loans.

The fair value of loans reflects expected credit losses at the balance sheet date 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.

Deposits by banks and customer accounts

The fair values of deposits are approximated by their carrying value.

Debt securities in issue and subordinated liabilities

Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted market prices for

similar instruments. When quoted market prices are unavailable, these instruments are valued using valuation techniques, the inputs for which

are derived from observable market data and, where relevant, assumptions in respect of unobservable inputs.

Repurchase and reverse repurchase agreements – non-trading

Fair values approximate carrying amounts as balances are generally short dated.

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.

Notes on the financial statements


102	HSBC UK Bank plc Annual Report and Accounts 2023


9	Derivatives


Notional contract amounts and fair values of derivatives by product contract type held
	Notional contract amount		Fair value – Assets			Fair value – Liabilities
	Trading	Hedging	Trading	Hedging	Total	Trading	Hedging	Total
The group and bank	£m	£m	£m	£m	£m	£m	£m	£m
Foreign exchange	8,064	75	61	2	63	76	1	77
Interest rate	61,286	74,368	2,042	1,744	3,786	2,019	1,686	3,705
Equities	9	—	3	—	3	—	—	—
Gross total fair values	69,359	74,443	2,106	1,746	3,852	2,095	1,687	3,782
Offset (Note 22)					(3,674)			(3,674)
At 31 Dec 2023	69,359	74,443	2,106	1,746	178	2,095	1,687	108


Foreign exchange	21,892	106	145	—	145	83	8	91
Interest rate	37,231	46,121	1,265	1,298	2,563	1,326	1,049	2,375
Equities	—	—	—	—	—	—	—	—
Gross total fair values	59,123	46,227	1,410	1,298	2,708	1,409	1,057	2,466
Offset (Note 22)					(2,162)			(2,162)
At 31 Dec 2022	59,123	46,227	1,410	1,298	546	1,409	1,057	304

The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting indicate the

nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.

Use of derivatives

We undertake derivative activity for two primary purposes: to create risk management solutions for commercial clients and to manage and

hedge our own balance sheet risks.

Hedge accounting derivatives

The group applies hedge accounting to manage the following risks: interest rate risk and foreign exchange risks. Further details on how these

risks arise and how they are managed by the group can be found in the 'Risk review'.

Hedge risk components

The group designates a portion of cash flows of a financial instrument or a group of financial instruments for a specific interest rate or foreign

currency risk component in a fair value or cash flow hedge. The designated risks and portions are either contractually specified or otherwise

separately identifiable components of the financial instrument that are reliably measurable. Risk-free or benchmark interest rates generally are

regarded as being both separately identifiable and reliably measurable, except for the IBOR Reform transition where the group designates

Alternative Benchmark Rates as the hedged risk which may not have been separately identifiable upon initial designation, provided the group

reasonably expects it will meet the requirement within 24 months from the first designation date. The designated risk component accounts for

a significant portion of the overall changes in fair value or cash flows of the hedged items.

Fair value hedges

The group enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value due to movements in market

interest rates on certain fixed rate financial instruments which are not measured at fair value through profit or loss.


Hedging instrument by hedged risk
	Hedging Instrument
	Carrying amount
	Notional amount1	Assets	Liabilities	Balance sheet Presentation	Change in fair value2
Hedged risk	£m	£m	£m	Balance sheet Presentation	£m
Interest rate3	22,928	1,135	1,086	Derivatives	(270)
At 31 Dec 2023	22,928	1,135	1,086		(270)


Interest rate3	18,520	1,297	837	Derivatives	723
At 31 Dec 2022	18,520	1,297	837		723

1The 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.

2Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.

3The hedged risk ‘interest rate’ includes inflation risk.


HSBC UK Bank plc Annual Report and Accounts 2023	103


Hedged item by hedged risk
	Hedged item						Ineffectiveness
	Carrying amount		Accumulated fair value hedge adjustments included in carrying amount2			Change in fair value1	Recognised in profit and loss	Profit and loss presentation
	Assets	Liabilities	Assets	Liabilities	Balance sheet presentation	Change in fair value1	Recognised in profit and loss
Hedged risk	£m	£m	£m	£m	Balance sheet presentation	£m	£m
Interest rate4	12,141		(17)		Financial investments measured at fair value through other comprehensive income	465	4	Net income from financial instruments held for trading or managed on a fair value basis
	2,172		(58)		Loans and advances to customers	54
	403		25		Financial Investments measured at amortised cost	26
		6,691		(285)	Subordinated Liabilities3	(271)
At 31 Dec 2023	14,716	6,691	(50)	(285)		274	4


Interest rate4	9,937		(912)		Financial investments measured at fair value through other comprehensive income	(1,300)	2	Net income from financial instruments held for trading or managed on a fair value basis
	1,250		(112)		Loans and advances to customers	(110)
		5,326		(573)	Subordinated Liabilities3	689
At 31 Dec 2022	11,187	5,326	(1,024)	(573)		(721)	2

1 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.

2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted

for hedging gains and losses were assets/(liabilities) of £(4)m (2022: £(12)m) for FVOCI and liabilities of £(58)m for Loans and advances to customers

(2022: £(111)m) and £(3)m for Financial Investments measured at amortised cost (2022: £Nil).

3 The notional amount of non-dynamic fair value hedges is equal to £6,921m (2022: £5,901m), of which the weighted-average maturity date is January

2028 and the weighted average swap rate is 1.89% (2022: 1.28%). These hedges are all internal to HSBC Group and hedges internal funding

between HSBC Group and HSBC UK.

4 The hedged risk ‘interest rate’ includes inflation risk.

The hedged item is either the benchmark interest rate risk portion within the fixed rate of the hedged item or the full fixed rate and it is hedged

for changes in fair value due to changes in the benchmark interest rate risk.

HSBC UK applies macro fair value hedging for interest rate risk exposures on portfolios of fixed rate mortgages. These are considered to be

dynamic hedges and both the hedged items and the hedging instruments are adjusted on a monthly basis when the existing hedging

relationship is terminated and a new one designated. The hedged items and hedging instruments are adjusted to reflect changes in the size

and maturity profile of the hedged portfolio.

Sources of hedge ineffectiveness may arise from basis risk including but not limited to the discount rates used for calculating the fair value of

derivatives, hedges using instruments with a non-zero fair value and notional and timing differences between the hedged items and hedging

instruments.

The disclosures for the group are the same as the disclosures for the bank.

Cash flow hedges

The group’s cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the

variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and foreign-

currency basis.

The group applies macro cash flow hedging for interest-rate risk exposures on portfolios of replenishing current and forecasted issuances of

non-trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future cash

flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their

contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows representing both

principal balances and interest cash flows across all portfolios are used to determine the effectiveness and ineffectiveness. Macro cash flow

hedges are considered to be dynamic hedges.

The group also hedges the variability in future cash-flows on foreign-denominated financial assets and liabilities arising due to changes in

foreign exchange market rates with cross-currency swaps, these are considered dynamic hedges.

Notes on the financial statements


104	HSBC UK Bank plc Annual Report and Accounts 2023


Hedging instrument by hedged risk
	Hedging Instrument					Hedged	Ineffectiveness
		Carrying amount			Change in fair value2	Change in fair value3	Recognised in profit and loss	Profit and loss presentation
	Notional amount1	Assets	Liabilities	Balance sheet presentation	Change in fair value2	Change in fair value3	Recognised in profit and loss
Hedged risk	£m	£m	£m	Balance sheet presentation	£m	£m	£m
Foreign currency	75	2	1	Derivatives	12	12	—	Net income from financial instruments held for trading or managed on a fair value basis
Interest rate	51,440	609	600	Derivatives	537	536	1
At 31 Dec 2023	51,515	611	601		549	548	1


Foreign currency	106	—	8	Derivatives	(8)	(8)	—	Net income from financial instruments held for trading or managed on a fair value basis
Interest rate	27,601	1	212	Derivatives	(1,876)	(1,876)	—
At 31 Dec 2022	27,707	1	220		(1,884)	(1,884)	—

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.

2Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.

3Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.

Sources of hedge ineffectiveness may arise from basis risk, including but not limited to timing differences between the hedged items and

hedging instruments and hedges using instruments with a non-zero fair value.

The disclosures for the group are the same as the disclosures for the bank.


Reconciliation of equity and analysis of other comprehensive income by risk type
	Interest rate	Foreign
	£m	£m
Cash flow hedging reserve at 1 Jan 2023	(1,325)	1
Fair value gains/(losses)	536	12
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	896	(12)
Income taxes	(401)	—
Cash flow hedging reserve at 31 Dec 2023	(294)	1


Cash flow hedging reserve at 1 Jan 2022	(89)	(1)
Fair value gains/(losses)	(1,876)	(8)
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	170	10
Income taxes	470	—
Cash flow hedging reserve at 31 Dec 2022	(1,325)	1


10	Financial investments


Carrying amount of financial investments
	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Financial investments measured at fair value through other comprehensive income	14,496	10,932	14,496	10,932
– treasury and other eligible bills	884	512	884	512
– debt securities	13,611	10,419	13,611	10,419
– equity securities	1	1	1	1
Debt instruments measured at amortised cost	11,819	5,160	11,608	5,160
– treasury and other eligible bills	3,188	448	3,017	448
– debt securities	8,631	4,712	8,591	4,712
At 31 Dec	26,315	16,092	26,104	16,092


HSBC UK Bank plc Annual Report and Accounts 2023	105


11	Assets pledged, collateral received and assets transferred

Assets pledged


Financial assets pledged as collateral
	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Treasury bills and other eligible securities	170	—	—	—
Debt securities	6,717	8,375	6,717	8,375
Loans and advances to banks	6,600	4,700	9,047	4,700
Loans and advances to customers	15,016	14,598	15,016	14,598
Other	116	294	116	294
Assets pledged at 31 Dec	28,619	27,967	30,896	27,967

The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, 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 to collateralised transactions including, where relevant, standard

securities lending and borrowing, repurchase agreements and derivative margining. The group places both cash and non-cash collateral in

relation to derivative transactions.


Financial assets pledged as collateral that the counterparty has the right to sell or repledge
	The group and bank
	2023	2022
	£m	£m
Financial investments	5,542	7,536
At 31 Dec	5,542	7,536

Collateral received

The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements and derivative

margining, that the group and the bank is permitted to sell or repledge in the absence of default was £10,689m (2022: £10,084m). The group

and the bank 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. The fair value of financial assets accepted as collateral by the

group and the bank that have been sold or repledged is £3,456m (2022: £5,967m).

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 securities lent under securities lending agreements and mortgages to

collateralise the covered bond programme. For secured borrowings, the transferred asset collateral continues to be recognised in full and 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 these

transactions, and remains exposed to interest rate risk and credit risk on these pledged assets. The counterparty’s recourse is not limited to the

transferred assets.


Transferred financial assets not qualifying for full derecognition and associated financial liabilities
	2023		2022
	Carrying amount of:		Carrying amount of:
	Transferred assets	Associated liabilities	Transferred assets	Associated liabilities
The group	£m	£m	£m	£m
Repurchase agreements	4,350	2,644	5,064	4,367
Securities lending agreements	1,192	—	2,472	—

The bank
Repurchase agreements	4,350	2,644	5,064	4,367
Securities lending agreements	1,192	—	2,472	—
Other sales (recourse for full amount)	2,829	998	1,245	499

Notes on the financial statements


106	HSBC UK Bank plc Annual Report and Accounts 2023


12	Interests in joint ventures

Vaultex UK Limited is a joint venture of the bank and the group. Vaultex UK Limited is incorporated in England and its principal activity is that of

cash management services. At 31 December 2023, the group had a 50% interest in the £10m issued equity capital (2022: 50%).

For further detail see Note 30.


13	Investments in subsidiaries


Main subsidiaries of HSBC UK Bank plc
	Country of incorporation or registration	HSBC UK Bank plc’s interest in equity capital	Share class
	Country of incorporation or registration	%	Share class
HSBC Equipment Finance (UK) Limited	England and Wales	100.00	Ordinary £1
HSBC Invoice Finance (UK) Limited	England and Wales	100.00	Ordinary £1
Marks and Spencer Financial Services plc	England and Wales	100.00	Ordinary £1
HSBC Innovation Bank Limited	England and Wales	100.00	Ordinary £1

All the above prepare their financial statements up to 31 December.

On 13 March 2023, HSBC UK acquired Silicon Valley Bank UK Limited (now HSBC Innovation Bank Limited) for £1, acquiring 100% of the

equity and thereby obtaining control (see Note 28 for more information on the acquisition).

Details of all group subsidiaries, as required under Section 409 of the Companies Act 2006, are set out in Note 30. The principal country of

operation is the same as the country of incorporation.

Impairment testing of investments in subsidiaries

At each reporting period end, HSBC UK Bank plc 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:

– The cash flow projections for each investment are based on the latest approved plans, which includes 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 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 operating model.

– A long-term growth rate is used to extrapolate the cash flows in perpetuity. The growth rate reflects inflation and is based on the UK long-

term average.

– 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

model. CAPM depends on a number of inputs reflecting financial and economic variables, including the riskfree 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 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.

Impairment test results

During 2023, an impairment of £92m (2022: £Nil) was recognised on the bank's investment in Marks and Spencer Financial Services plc as the

VIU calculation performed identified that the recoverable amount was below the carrying amount:


Investment	Carrying amount £m	VIU £m	Impairment £m	Long term growth rate %	Discount rate %
Marks and Spencer Financial Services plc	746	654	92	2.05	10.43

There are no reasonably possible changes in the assumptions used to perform the VIU calculation in the next 12 months that would materially

impact the impairment recognised.

During 2023, an impairment of £0.1m (2022: £4m) was recognised on the bank's investment in HSBC Trust Company (UK) Limited, due to a

reduction in the net assets of the entity.

No further impairments were recognised as a result of the impairment testing in subsidiaries performed in 2023.


HSBC UK Bank plc Annual Report and Accounts 2023	107


14	Structured entities

The group is involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets and

investment funds, established either by the group or a third party.

Consolidated structured entities

Total assets of the group’s consolidated structured entities, split by entity type:


	Securitisations	Other	Total
	£m	£m	£m
At 31 Dec 2023	675	1,006	1,681
At 31 Dec 2022	315	502	817

Securitisations

The group uses a structured entity to securitise customer loans and advances to diversify its sources of funding for asset origination and capital

efficiency purposes. The loans and advances are transferred by the group to the structured entity synthetically, and the structured entity issues

debt securities to investors.

Unconsolidated structured entities

The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by the group. The group enters into transactions

with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment

opportunities.

The group's interest in unconsolidated structured entities consist of unit holdings in four funds managed by a third party within the wider HSBC

Group. The group's unit holdings are held to facilitate customer transactions and are recognised as Other assets with a carrying value and

maximum exposure to loss at 31 December 2023 of £0.2m (2022: £0.2m). The total assets of the funds at 31 December 2023 were £1.1bn

(2022: £1.1bn). The group has no liabilities or commitments in respect of the funds.


15	Goodwill and intangible assets


	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Goodwill	3,285	3,285	223	223
Other intangible assets1	1,078	973	978	962
At 31 Dec	4,363	4,258	1,201	1,185

1 Included within the group's other intangible assets is internally generated software with a net carrying value of £991m (2022: £973m). During the

year, capitalisation of internally generated software is £321m (2022: £382m), impairment was £8m (2022: £45m) and amortisation is £295m (2022:

£273m). The amortisation and impairment of intangible assets totalled for the group £319m (2022: £318m).

Impairment testing

The group’s annual impairment test in respect of goodwill allocated to each CGU is performed at 1 October each year. A review for indicators

of impairment is undertaken at 30 June and 31 December. At 31 December 2023, this review did not identify any indicators of impairment. As a

result, no impairment test has been performed at 31 December 2023.

Basis of the recoverable amount

The recoverable amount of all CGUs to which goodwill has been allocated was equal to its VIU at each respective testing date. The VIU is

calculated by discounting management’s cash flow projections for the CGU. At 1 October 2023, all CGUs supporting goodwill had a VIU larger

than their respective carrying amounts. The key assumptions used in the VIU calculation for each CGU are discussed below.


Key assumptions in VIU calculation
	Goodwill at 1 Oct 2023	Discount rate	Growth rate beyond initial cash flow projections	Goodwill at 1 Oct 2022	Discount rate	Growth rate beyond initial cash flow projections
Cash-generating unit	£m	%	%	£m	%	%
WPB	2,046	10.4	2.1	2,046	9.6	2.1
CMB	1,239	9.0	2.1	1,239	8.6	2.1
Total	3,285			3,285

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 cash flow projections for each CGU are based on the forecast profitability plans approved by the Board and minimal 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 HSBC UK’s 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 internal planning horizon. 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. Our cash flow projections include known climate-related opportunities and costs associated with our operating model.

Notes on the financial statements


108	HSBC UK Bank plc Annual Report and Accounts 2023

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 CAPM and market

implied cost of equity. 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. The long-term growth rate reflects inflation for the UK.

Sensitivities of key assumptions in calculating VIU

At 1 October 2023, there were no CGUs deemed sensitive to reasonably possible adverse changes in key assumptions supporting the

recoverable amounts. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in

respect of each input into 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.


16	Prepayments, accrued income and other assets


	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Prepayments and accrued income	1,378	986	1,360	1,011
Settlement accounts	85	9	86	9
Cash collateral and margin receivables	27	222	27	222
Endorsements and acceptances	32	49	32	49
Employee benefit assets (Note 3)	5,337	5,257	5,337	5,257
Right-of-use assets	169	171	145	158
Other accounts	922	1,610	776	1,439
Owned property, plant and equipment	371	458	354	382
At 31 Dec	8,321	8,762	8,117	8,527

For the group, prepayments, accrued income and other assets include £1,803m (2022: £1,871m), and for the bank £1,811m (2022: £1,901m) of

financial assets, majority of which are measured at amortised cost. Other accounts includes a receivable of £73m (2022: £71m) arising from our

profit and loss sharing arrangement with Marks & Spencer plc, which is tested for impairment in line with our accounting policy on the

impairment of non-financial assets.


17	Debt securities in issue


	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Bonds and medium-term notes1	574	358	150	150
Covered bonds	998	499	998	499
Other debt securities in issue2	416	442	416	442
At 31 Dec	1,988	1,299	1,564	1,091

1 The group's Bonds and medium-term notes includes £426m (2022: £208m) issued by structured entities.

2 Other debt securities in issue consists of commercial paper and certificates of deposits.


18	Accruals, deferred income and other liabilities


	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Accruals and deferred income	1,203	645	1,125	615
Settlement accounts	4	81	4	81
Cash collateral and margin payable	263	234	263	234
Endorsements and acceptances	38	51	38	51
Lease liabilities	188	198	163	184
Other liabilities	2,428	2,334	2,209	2,165
At 31 Dec	4,124	3,543	3,802	3,330

For the group, accruals, deferred income and other liabilities include £3,959m (2022: £3,362m), and for the bank £3,744m (2022: £3,269m) of

financial liabilities, the majority of which are measured at amortised cost.


HSBC UK Bank plc Annual Report and Accounts 2023	109


19	Provisions


	Restructuring costs	Legal proceedings and regulatory matters	Customer remediation	Other provisions	Total
The group	£m	£m	£m	£m	£m
Provisions (excluding contractual commitments)
At 1 Jan 2023	63	32	142	82	319
Additions	28	4	24	18	74
Amounts utilised	(36)	(2)	(49)	(6)	(93)
Unused amounts reversed	(28)	—	(29)	(18)	(75)
Exchange and other movements	3	—	1	(2)	2
At 31 Dec 2023	30	34	89	74	227
Contractual commitments1
At 1 Jan 2023					105
Net change in expected credit loss provision and other movements					18
At 31 Dec 2023					123
Total provisions
At 31 Dec 2022					424
At 31 Dec 2023					350


Provisions (excluding contractual commitments)
At 1 Jan 2022	22	39	256	96	413
Additions	65	5	38	33	141
Amounts utilised	(20)	(10)	(75)	(6)	(111)
Unused amounts reversed	(27)	(2)	(83)	(25)	(137)
Exchange and other movements	23	—	6	(16)	13
At 31 Dec 2022	63	32	142	82	319
Contractual commitments1
At 1 Jan 2022					82
Net change in expected credit loss provision and other movements					23
At 31 Dec 2022					105
Total provisions
At 31 Dec 2021					495
At 31 Dec 2022					424

1Contractual commitments include the provision for contingent liabilities measured under IFRS 9 Financial Instruments in respect of financial

guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.

Notes on the financial statements


110	HSBC UK Bank plc Annual Report and Accounts 2023


	Restructuring costs	Legal proceedings and regulatory matters	Customer remediation	Other provisions	Total
The bank	£m	£m	£m	£m	£m
Provisions (excluding contractual commitments)
At 1 Jan 2023	63	32	107	82	284
Additions	27	4	32	18	81
Amounts utilised	(35)	(2)	(39)	(6)	(82)
Unused amounts reversed	(28)	—	(27)	(18)	(73)
Exchange and other movements	3	—	1	(2)	2
At 31 Dec 2023	30	34	74	74	212
Contractual commitments1
At 1 Jan 2023					102
Net change in expected credit loss provision and other movements					13
At 31 Dec 2023					115
Total provisions
At 31 Dec 2022					386
At 31 Dec 2023					327


Provisions (excluding contractual commitments)
At 1 Jan 2022	22	39	205	96	362
Additions	65	5	33	33	136
Amounts utilised	(20)	(10)	(62)	(6)	(98)
Unused amounts reversed	(27)	(2)	(76)	(25)	(130)
Exchange and other movements	23	—	7	(16)	14
At 31 Dec 2022	63	32	107	82	284
Contractual commitments1
At 1 Jan 2022					80
Net change in expected credit loss provision and other movements					22
At 31 Dec 2022					102
Total provisions
At 31 Dec 2021					442
At 31 Dec 2022					386

1Contractual commitments include the provision for contingent liabilities measured under IFRS 9 Financial Instruments in respect of financial

guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.

Customer remediation

Customer remediation refers to HSBC UK’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 UK in response to customer complaints and/or

industry developments in sales practices, and is not necessarily initiated by regulatory action.

Restructuring costs

The restructuring costs provision is for costs associated with the group’s transformation programme.

Legal proceedings and regulatory matters

Further details of 'Legal proceedings and regulatory matters' are set out in Note 26. Legal proceedings include civil court, arbitration or tribunal

proceedings brought against the group (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court,

arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the

actions of, regulatory or law enforcement agencies in connection with alleged wrongdoing.


HSBC UK Bank plc Annual Report and Accounts 2023	111


20	Subordinated liabilities


Subordinated liabilities
	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
At amortised cost	14,598	12,349	14,598	12,349
– subordinated liabilities1	14,598	12,349	14,598	12,349
At 31 Dec	14,598	12,349	14,598	12,349

1Includes £11.3bn (2022: £9.3bn) of eligible debt issued to meet our Minimum requirement for own funds and Eligible Liabilities applicable from

1 January 2020.

Subordinated liabilities rank behind senior obligations and generally count towards the capital base of the group. Capital securities may be called

and redeemed by the group subject to prior notification to and consent of the PRA.

The balance sheet amounts disclosed below 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.


Subordinated liabilities of the group
				Carrying amount
				2023	2022
		First call date	Maturity date	£m	£m
Capital instruments
Tier 2 instruments
£550m	HSBC UK Bank plc Subordinated Floating Loan 20331	Jul 2028	Jul 2033	548	550
$840m	HSBC UK Bank plc Subordinated Floating Loan 20332	Jul 2028	Jul 2033	656	697
£100m	HSBC UK Bank plc 2.8594% Subordinated Loan 2029	Mar 2024	Mar 2029	100	100
£1,000m	HSBC UK Bank plc Subordinated Floating Loan 20303	Jul 2025	Jul 2030	1,000	1,000
£650m	HSBC UK Bank plc Subordinated Floating Loan 20334	Sep 2028	Sep 2033	650	650
£79m	HSBC UK Bank plc 2.1250% Subordinated Loan 2031	Mar 2026	Mar 2031	79	79
£250m	HSBC UK Bank plc 6.8960% Subordinated Loan 2033	Dec 2028	Dec 2033	255	—
Other instruments
Subordinated loan instruments not eligible for inclusion in regulatory capital
$2000m	HSBC UK Bank plc 0.9760% MREL eligible Subordinated Loan 2025	May 2024	May 2025	1,536	1,558
£350m	HSBC UK Bank plc 1.8777% MREL eligible Subordinated Loan 2025	Oct 2024	Oct 2025	350	350
£150m	HSBC UK Bank plc 2.1003% MREL eligible Subordinated Loan 2025	Oct 2024	Oct 2025	150	150
€500m	HSBC UK Bank plc MREL eligible Subordinated Floating Loan 20265	Sep 2025	Sep 2026	437	449
£1,000m	HSBC UK Bank plc 1.1250% MREL eligible Subordinated Loan 2026	Nov 2025	Nov 2026	1,000	1,000
£1,000m	HSBC UK Bank plc 1.7500% MREL eligible Subordinated Loan 2027	Jul 2026	Jul 2027	999	998
£1,000m	HSBC UK Bank plc 3.0000% MREL eligible Subordinated Loan 2028	Jul 2027	Jul 2028	922	880
£1,000m	HSBC UK Bank plc 1.7500% MREL eligible Subordinated Loan 2029	Aug 2028	Aug 2029	1,000	1,000
$3000m	HSBC UK Bank plc 3.9730% MREL eligible Subordinated Loan 2030	May 2029	May 2030	2,181	2,259
£750m	HSBC UK Bank plc 3.0000% MREL eligible Subordinated Loan 2030	May 2029	May 2030	666	629
£1,000m	HSBC UK Bank plc MREL eligible Subordinated Floating Loan 20296	Apr 2028	Apr 2029	998	—
£1,000m	HSBC UK Bank plc 6.8000% MREL eligible Subordinated Loan 2031	Sep 2030	Sep 2031	1,071	—
At 31 Dec				14,598	12,349

1The floating rate of interest is Sonia plus 3.37%.

2The floating rate of interest is SOFR plus 3.03%.

3The floating rate of interest is Sonia plus 1.89%.

4The floating rate of interest is Sonia plus 2.14%.

5The floating rate of interest is three month Euribor plus 1.00%.

6 The floating rate of interest is Sonia plus 2.03%.

Notes on the financial statements


112	HSBC UK Bank plc Annual Report and Accounts 2023


21	Maturity analysis of assets, liabilities and off-balance sheet commitments

The following table 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 derivatives 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.

– Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.


Maturity analysis of assets, liabilities and off-balance sheet commitments
	Due not more 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
The group
Financial assets
Cash and balances at central banks	65,719	—	—	—	—	—	—	—	65,719
Items in the course of collection from other banks	284	—	—	—	—	—	—	—	284
Financial assets mandatorily measured at fair value	89	—	—	—	—	—	—	46	135
Derivatives	73	1	—	—	1	4	25	74	178
Loans and advances to banks	6,947	111	922	—	—	—	—	—	7,980
Loans and advances to customers	16,357	9,502	6,562	5,339	5,877	19,294	40,853	108,103	211,887
– personal	6,280	2,490	1,980	1,907	1,897	7,047	19,955	101,056	142,612
– corporate and commercial	9,536	5,596	3,366	2,015	3,290	11,103	20,413	6,659	61,978
– financial	541	1,416	1,216	1,417	690	1,144	485	388	7,297
Reverse repurchase agreements – non-trading	2,257	3,334	1,195	—	900	—	—	—	7,686
Financial investments	1,273	2,275	1,270	386	412	1,942	5,963	12,794	26,315
Accrued income and other financial assets	1,435	256	90	9	10	1	4	—	1,805
Total financial assets at 31 Dec 2023	94,434	15,479	10,039	5,734	7,200	21,241	46,845	121,017	321,989
Non-financial assets	—	—	—	—	—	—	—	10,887	10,887
Total assets at 31 Dec 2023	94,434	15,479	10,039	5,734	7,200	21,241	46,845	131,904	332,876
Financial liabilities
Deposits by banks	519	24	—	—	—	500	9,800	—	10,843
Customer accounts1	253,400	4,615	2,876	2,378	3,363	1,652	61	—	268,345
– personal	159,488	1,028	1,639	2,048	3,112	1,619	56	—	168,990
– corporate and commercial	89,054	3,311	1,180	320	248	30	5	—	94,148
– financial	4,858	276	57	10	3	3	—	—	5,207
Repurchase agreements – non-trading	4,652	—	—	—	—	—	—	—	4,652
Items in the course of transmission to other banks	411	—	—	—	—	—	—	—	411
Derivatives	91	—	—	—	—	2	6	9	108
Debt securities in issue	47	368	—	150	—	—	1,204	219	1,988
Accruals and other financial liabilities	2,858	484	306	143	26	38	70	32	3,957
Subordinated liabilities	—	100	1,536	—	500	2,438	6,106	3,918	14,598
Total financial liabilities at 31 Dec 2023	261,978	5,591	4,718	2,671	3,889	4,630	17,247	4,178	304,902
Non-financial liabilities	—	—	—	—	—	—	—	1,904	1,904
Total liabilities at 31 Dec 2023	261,978	5,591	4,718	2,671	3,889	4,630	17,247	6,082	306,806
Off-balance sheet commitments given
Loan and other credit-related commitments	72,921	24	2	—	15	111	48	71	73,192
– personal	41,180	—	—	—	—	—	—	—	41,180
– corporate and commercial	28,399	24	2	—	15	111	48	71	28,670
– financial	3,342	—	—	—	—	—	—	—	3,342


HSBC UK Bank plc Annual Report and Accounts 2023	113


Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
	Due not more 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
The group
Financial assets
Cash and balances at central banks	94,407	—	—	—	—	—	—	—	94,407
Items in the course of collection from other banks	353	—	—	—	—	—	—	—	353
Financial assets mandatorily measured at fair value	72	—	—	—	—	—	—	36	108
Derivatives	84	1	1	1	—	2	117	340	546
Loans and advances to banks	5,283	—	1,074	—	—	—	—	—	6,357
Loans and advances to customers	16,645	10,575	8,753	6,128	5,462	18,412	34,746	103,422	204,143
– personal	6,195	2,254	1,843	1,888	1,851	7,059	20,301	96,363	137,754
– corporate and commercial	10,178	8,033	6,650	4,071	3,469	10,732	13,978	6,809	63,920
– financial	272	288	260	169	142	621	467	250	2,469
Reverse repurchase agreements – non-trading	573	3,012	1,749	1,322	750	—	—	—	7,406
Financial investments	300	1,200	70	137	131	529	3,874	9,851	16,092
Accrued income and other financial assets	1,614	179	52	19	3	—	—	—	1,867
Total financial assets at 31 Dec 2022	119,331	14,967	11,699	7,607	6,346	18,943	38,737	113,649	331,279
Non-financial assets	—	—	—	—	—	—	—	11,162	11,162
Total assets at 31 Dec 2022	119,331	14,967	11,699	7,607	6,346	18,943	38,737	124,811	342,441
Financial liabilities
Deposits by banks	393	30	—	—	—	—	10,298	—	10,721
Customer accounts1	275,777	2,558	997	381	1,016	360	6	—	281,095
– personal	177,548	767	391	296	828	348	2	—	180,180
– corporate and commercial	94,229	1,606	532	77	174	12	4	—	96,634
– financial	4,000	185	74	8	14	—	—	—	4,281
Repurchase agreements – non-trading	9,333	—	—	—	—	—	—	—	9,333
Items in the course of transmission to other banks	308	—	—	—	—	—	—	—	308
Derivatives	83	2	—	6	17	33	74	89	304
Debt securities in issue	44	398	—	150	—	—	707	—	1,299
Accruals and other financial liabilities	2,061	351	235	94	13	39	535	36	3,364
Subordinated liabilities	—	—	—	1,247	—	2,158	4,406	4,538	12,349
Total financial liabilities at 31 Dec 2022	287,999	3,339	1,232	1,878	1,046	2,590	16,026	4,663	318,773
Non-financial liabilities	—	—	—	—	—	—	—	1,442	1,442
Total liabilities at 31 Dec 2022	287,999	3,339	1,232	1,878	1,046	2,590	16,026	6,105	320,215
Off-balance sheet commitments given
Loan and other credit-related commitments	70,263	39	—	10	—	24	124	23	70,483
– personal	42,059	—	—	—	—	—	—	—	42,059
– corporate and commercial	27,094	39	—	10	—	24	124	23	27,314
– financial	1,110	—	—	—	—	—	—	—	1,110

1'Customer accounts' includes £133,791m (2022: £137,319m) insured by guarantee schemes.

Notes on the financial statements


114	HSBC UK Bank plc Annual Report and Accounts 2023


Maturity analysis of assets, liabilities and off-balance sheet commitments
	Due not more 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
The bank
Financial assets
Cash and balances at central banks	65,719	—	—	—	—	—	—	—	65,719
Items in the course of collection from other banks	96	—	—	—	—	—	—	—	96
Financial assets mandatorily measured at fair value	89	—	—	—	—	—	—	46	135
Derivatives	73	1	—	—	1	4	25	71	175
Loans and advances to banks	9,831	456	1,395	155	152	505	1,148	—	13,642
Loans and advances to customers	19,065	4,715	4,364	3,961	5,147	18,387	37,953	107,422	201,014
– personal	3,992	2,223	1,885	1,817	1,813	6,758	19,564	101,030	139,082
– corporate and commercial	9,267	2,159	2,130	1,888	3,032	10,012	17,243	5,909	51,640
– financial	5,806	333	349	256	302	1,617	1,146	483	10,292
Reverse repurchase agreements – non-trading	2,257	3,334	1,195	—	900	—	—	—	7,686
Financial investments	1,273	2,105	1,270	386	412	1,942	5,962	12,754	26,104
Accrued income and other financial assets	1,535	175	85	8	9	—	—	—	1,812
Total financial assets at 31 Dec 2023	99,938	10,786	8,309	4,510	6,621	20,838	45,088	120,293	316,383
Non-financial assets	—	—	—	—	—	—	—	8,429	8,429
Total assets at 31 Dec 2023	99,938	10,786	8,309	4,510	6,621	20,838	45,088	128,722	324,812
Financial liabilities
Deposits by banks	2,144	67	92	77	112	765	10,413	450	14,120
Customer accounts1	249,185	3,280	2,658	2,348	3,286	1,580	5	—	262,342
– personal	158,993	987	1,598	2,019	3,048	1,547	—	—	168,192
– corporate and commercial	85,708	2,141	1,019	319	235	30	5	—	89,457
– financial	4,484	152	41	10	3	3	—	—	4,693
Repurchase agreements – non-trading	4,652	—	—	—	—	—	—	—	4,652
Items in the course of transmission to other banks	408	—	—	—	—	—	—	—	408
Derivatives	90	—	—	—	—	2	7	9	108
Debt securities in issue	48	368	—	150	—	—	998	—	1,564
Accruals and other financial liabilities	2,727	429	302	141	25	34	57	28	3,743
Subordinated liabilities	—	100	1,536	—	500	2,438	6,106	3,918	14,598
Total financial liabilities at 31 Dec 2023	259,254	4,244	4,588	2,716	3,923	4,819	17,586	4,405	301,535
Non-financial liabilities	—	—	—	—	—	—	—	1,712	1,712
Total liabilities at 31 Dec 2023	259,254	4,244	4,588	2,716	3,923	4,819	17,586	6,117	303,247
Off-balance sheet commitments given
Loan and other credit-related commitments	56,063	—	—	—	—	—	—	—	56,063
– personal	30,562	—	—	—	—	—	—	—	30,562
– corporate and commercial	24,617	—	—	—	—	—	—	—	24,617
– financial	884	—	—	—	—	—	—	—	884


HSBC UK Bank plc Annual Report and Accounts 2023	115


Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
	Due not more 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
The bank
Financial assets
Cash and balances at central banks	94,407	—	—	—	—	—	—	—	94,407
Items in the course of collection from other banks	154	—	—	—	—	—	—	—	154
Financial assets mandatorily measured at fair value	72	—	—	—	—	—	—	36	108
Derivatives	84	1	1	1	—	2	117	340	546
Loans and advances to banks	5,675	370	1,588	145	145	486	895	—	9,304
Loans and advances to customers	20,286	7,041	7,218	6,157	5,391	18,036	32,667	102,870	199,666
– personal	4,147	1,988	1,740	1,790	1,759	6,741	19,869	96,334	134,368
– corporate and commercial	9,978	4,589	5,099	3,981	3,297	10,078	11,510	6,173	54,705
– financial	6,161	464	379	386	335	1,217	1,288	363	10,593
Reverse repurchase agreements – non-trading	573	3,012	1,749	1,322	750	—	—	—	7,406
Financial investments	300	1,200	70	137	131	530	3,874	9,850	16,092
Accrued income and other financial assets	1,652	164	52	19	3	—	7	—	1,897
Total financial assets at 31 Dec 2022	123,203	11,788	10,678	7,781	6,420	19,054	37,560	113,096	329,580
Non-financial assets	—	—	—	—	—	—	—	8,830	8,830
Total assets at 31 Dec 2022	123,203	11,788	10,678	7,781	6,420	19,054	37,560	121,926	338,410
Financial liabilities
Deposits by banks	911	50	65	45	55	115	10,378	—	11,619
Customer accounts1	274,258	2,558	997	381	1,015	360	6	—	279,575
– personal	176,657	767	391	296	828	348	2	—	179,289
– corporate and commercial	93,220	1,606	532	77	173	12	4	—	95,624
– financial	4,381	185	74	8	14	—	—	—	4,662
Repurchase agreements – non-trading	9,333	—	—	—	—	—	—	—	9,333
Items in the course of transmission to other banks	304	—	—	—	—	—	—	—	304
Derivatives	83	2	—	6	17	33	74	89	304
Debt securities in issue	44	398	—	150	—	—	499	—	1,091
Accruals and other financial liabilities	1,993	341	231	94	12	37	529	32	3,269
Subordinated liabilities	—	—	—	1,247	—	2,158	4,406	4,538	12,349
Total financial liabilities at 31 Dec 2022	286,926	3,349	1,293	1,923	1,099	2,703	15,892	4,659	317,844
Non-financial liabilities	—	—	—	—	—	—	—	1,272	1,272
Total liabilities at 31 Dec 2022	286,926	3,349	1,293	1,923	1,099	2,703	15,892	5,931	319,116
Off-balance sheet commitments given
Loan and other credit-related commitments	57,179	—	—	—	—	—	—	—	57,179
– personal	31,527	—	—	—	—	—	—	—	31,527
– corporate and commercial	24,560	—	—	—	—	—	—	—	24,560
– financial	1,092	—	—	—	—	—	—	—	1,092

1‘Customer accounts’ includes £132,847m (2022: £136,451m) insured by guarantee schemes.

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 derivatives not

treated as hedging derivatives). For this reason, balances in the table below do not agree directly with those in our consolidated balance sheet

and the bank's balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their

contractual maturities. 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, loans and other credit-related commitments, financial guarantees and similar contracts 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.

Notes on the financial statements


116	HSBC UK Bank plc Annual Report and Accounts 2023


Cash flows payable under financial liabilities by remaining contractual maturities
	Due not more 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
The group	£m	£m	£m	£m	£m	£m
Deposits by banks	560	106	367	12,257	—	13,290
Customer accounts	253,436	4,658	8,744	1,818	—	268,656
Repurchase agreements – non-trading	4,568	84	—	—	—	4,652
Derivatives	91	148	449	874	939	2,501
Debt securities in issue	48	382	192	1,598	268	2,488
Subordinated liabilities	49	196	2,430	9,976	4,034	16,685
Other financial liabilities	2,804	390	411	121	36	3,762
	261,556	5,964	12,593	26,644	5,277	312,034
Loan and other credit-related commitments	72,921	24	16	160	71	73,192
Financial guarantees	1,122	—	—	—	—	1,122
At 31 Dec 2023	335,599	5,988	12,609	26,804	5,348	386,348
Proportion of cash flows payable in period %	87	2	3	7	1	100


Deposits by banks	406	57	121	10,942	—	11,526
Customer accounts	275,781	2,561	2,401	370	—	281,113
Repurchase agreements – non-trading	9,346	—	—	—	—	9,346
Derivatives	84	16	286	308	354	1,048
Debt securities in issue	44	405	173	882	—	1,504
Subordinated liabilities	29	56	1,485	7,369	4,683	13,622
Other financial liabilities	2,174	326	335	584	39	3,458
	287,864	3,421	4,801	20,455	5,076	321,617
Loan and other credit-related commitments	70,263	39	10	148	23	70,483
Financial guarantees	1,148	—	—	—	—	1,148
At 31 Dec 2022	359,275	3,460	4,811	20,603	5,099	393,248
Proportion of cash flows payable in period %	92	1	1	5	1	100


The bank
Deposits by banks	2,191	157	685	13,290	647	16,970
Customer accounts	249,216	3,316	8,416	1,691	—	262,639
Repurchase agreements – non-trading	4,568	84	—	—	—	4,652
Derivatives	90	148	449	873	939	2,499
Debt securities in issue	48	370	156	1,240	—	1,814
Subordinated liabilities	49	196	2,430	9,976	4,034	16,685
Other financial liabilities	2,685	343	404	103	31	3,566
	258,847	4,614	12,540	27,173	5,651	308,825
Loan and other credit-related commitments	56,063	—	—	—	—	56,063
Financial guarantees	1,122	—	—	—	—	1,122
At 31 Dec 2023	316,032	4,614	12,540	27,173	5,651	366,010
Proportion of cash flows payable in period %	86	1	4	7	2	100


Deposits by banks	925	78	289	11,145	—	12,437
Customer accounts	274,261	2,561	2,401	370	—	279,593
Repurchase agreements – non-trading	9,346	—	—	—	—	9,346
Derivatives	84	16	286	308	354	1,048
Debt securities in issue	44	399	155	591	—	1,189
Subordinated liabilities	29	56	1,485	7,369	4,683	13,622
Other financial liabilities	2,106	319	330	576	35	3,366
	286,795	3,429	4,946	20,359	5,072	320,601
Loan and other credit-related commitments	57,179	—	—	—	—	57,179
Financial guarantees	1,148	—	—	—	—	1,148
At 31 Dec 2022	345,122	3,429	4,946	20,359	5,072	378,928
Proportion of cash flows payable in period %	91	1	1	5	2	100


22	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 offsetting criteria is met.

This is achieved when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or

realise the asset and settle the liability simultaneously.

In the following table, the ‘Amounts not set off in the balance sheet’ include transactions where:

– the counterparty has an offsetting exposure with the group and a master netting or similar arrangement is in place with a right to set off only

in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and

– cash and non-cash collateral (debt securities) 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.


HSBC UK Bank plc Annual Report and Accounts 2023	117

The effect of over-collateralisation is excluded.

Amounts not subject to enforceable master netting agreements’ include contracts executed in jurisdictions where the rights of set off may not

be upheld under the local bankruptcy laws.

For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the

relevant customer agreements are subject to review and updated, as necessary, to ensure that the legal right of offset remains appropriate.


	Amounts subject to enforceable netting arrangements						Amounts not subject to enforceable netting arrangements4	Total
				Amounts not set off in the balance sheet		Net amount
	Gross amounts	Amounts offset	Net amounts in the balance sheet	Financial instrumens, including non-cash collateral	Cash collateral	Net amount
	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Derivatives (Note 9)	3,849	(3,674)	175	(37)	(128)	10	3	178
Reverse repos, stock borrowing and similar agreements classified as:
– non-trading assets	10,936	(3,250)	7,686	(7,686)	—	—	—	7,686
Loans and advances to customers2	5,652	(1,910)	3,742	(2,922)	—	820	—	3,742
At 31 Dec 2023	20,437	(8,834)	11,603	(10,645)	(128)	830	3	11,606


Derivatives (Note 9)	2,708	(2,162)	546	(288)	(234)	24	—	546
Reverse repos, stock borrowing and similar agreements classified as:
– non-trading assets	10,937	(3,531)	7,406	(7,406)	—	—	—	7,406
Loans and advances to customers2	5,555	(2,175)	3,380	(2,786)	—	594	—	3,380
At 31 Dec 2022	19,200	(7,868)	11,332	(10,480)	(234)	618	—	11,332


Financial liabilities
Derivatives1 (Note 9)	3,782	(3,674)	108	(86)	(18)	4	—	108
Repos, stock lending and similar agreements classified as:
– non-trading liabilities	7,902	(3,250)	4,652	(4,652)	—	—	—	4,652
Customer accounts3	8,790	(1,910)	6,880	(2,922)	—	3,958	4	6,884
At 31 Dec 2023	20,474	(8,834)	11,640	(7,660)	(18)	3,962	4	11,644


Derivatives1 (Note 9)	2,466	(2,162)	304	(41)	(218)	45	—	304
Repos, stock lending and similar agreements classified as:
– non-trading liabilities	12,864	(3,531)	9,333	(9,333)	—	—	—	9,333
Customer accounts3	9,057	(2,175)	6,882	(2,786)	—	4,096	2	6,884
At 31 Dec 2022	24,387	(7,868)	16,519	(12,160)	(218)	4,141	2	16,521

1At 31 December 2023, the amount of cash margin paid that had been offset against the gross derivatives liabilities was £353m (2022: £1,123m).

2At 31 December 2023, the total amount of 'Loans and advances to customers' recognised on the balance sheet was £211,887m (2022: £204,143m)

of which £3,742m (2022: £3,380m) was subject to offsetting.

3At 31 December 2023, the total amount of 'Customer accounts' recognised on the balance sheet was £268,345m (2022: £281,095m) of which

£6,880m (2022: £6,882m) was subject to offsetting.

4This includes exposures that continue to be secured by financial collateral.


23	Called up share capital and other equity instruments

Called up share capital and share premium


HSBC UK Bank plc ordinary shares of £1.00 each, issued and fully paid
	2023		2022
	Number	£m	Number	£m
At 1 Jan and 31 Dec	50,002	—	50,002	—


HSBC UK Bank plc share premium
	2023	2022
	£m	£m
At 31 Dec	9,015	9,015


Total called up share capital and share premium
	2023	2022
	£m	£m
At 31 Dec	9,015	9,015

Notes on the financial statements


118	HSBC UK Bank plc Annual Report and Accounts 2023

Other equity instruments


HSBC UK Bank plc additional tier 1 instruments
		2023	2022
		£m	£m
£1,096m	Undated Subordinated Additional Tier 1 instrument issued 2014 (Callable December 2019 onwards)	1,096	1,096
£1,100m	Undated Subordinated Additional Tier 1 instrument issued 2014 (Callable December 2024 onwards)	1,100	1,100
At 31 Dec		2,196	2,196

The bank has issued capital instruments that are included in the group’s capital base as fully CRR II compliant additional tier 1 capital.

Interest on these instruments will be due and payable only at the sole discretion of the bank, and the bank has sole and absolute discretion at

all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any date. There are

limitations on the payment of principal, interest or other amounts if such payments are prohibited under UK banking regulations, or other

requirements, if the bank has insufficient distributable items or if the bank fails to satisfy the solvency condition as defined in the instruments

terms.

The instruments are undated and are repayable, at the option of the bank, in whole at the initial call date, or on any Interest Payment Date after

the initial call date. In addition, the instruments are repayable at the option of the bank in whole for certain regulatory or tax reasons. Any

repayments require the prior notification to and consent of the PRA. These instruments rank pari passu with the bank’s most senior class or

classes of issued preference shares and therefore ahead of ordinary shares. These instruments will be written down in whole, together with

any accrued but unpaid interest if either the group’s solo or consolidated Common Equity Tier 1 Capital Ratio falls below 7.00%.


24	Contingent liabilities, contractual commitments, guarantees and contingent assets


	The group		The bank
	2023	2022	2023	2022
	£m	£m	£m	£m
Guarantees and other contingent liabilities:
– financial guarantees1	1,121	1,148	1,121	1,148
– performance and other guarantees	2,330	2,530	2,295	2,530
At 31 Dec	3,451	3,678	3,416	3,678
Commitments2:
– documentary credits and short-term trade-related transactions	187	52	187	52
– forward asset purchases and forward deposits placed	297	327	—	102
– standby facilities, credit lines and other commitments to lend	72,708	70,104	55,876	57,025
At 31 Dec	73,192	70,483	56,063	57,179

1Financial guarantees contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a

specified debtor fails to make payment when due, in accordance with the original or modified terms of a debt instrument. The amounts in the above

table are nominal principal amounts.

2Includes £70bn (2022: £68bn) for the group and £53bn (2022: £54bn) for the bank of commitments to which the impairment requirements in IFRS 9

are applied where the group and bank 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 represents

the maximum amounts at risk should the contracts be fully drawn upon and 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 19.

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 the group'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 Note 26.

Financial Services Compensation Scheme

The 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 HSBC UK 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.


HSBC UK Bank plc Annual Report and Accounts 2023	119

UK branches of HSBC overseas entities

In December 2017, HM Revenue & Customs (‘HMRC’) challenged the VAT status of certain UK branches of HSBC overseas entities. In Q1

2019, HMRC reaffirmed its assessment that the UK branches are ineligible to be members of the UK VAT group and HSBC filed appeals. In

February 2022, the Upper Tribunal issued a judgment addressing several preliminary legal issues, which was partially in favour of HMRC and

partially in favour of HSBC. The case has now returned to the First-tier Tax Tribunal for determination. Since January 2018, HSBC's returns have

been prepared on the basis that the UK branches are not in the UK VAT group. In the event that HSBC is successful, HSBC will seek a refund

of this VAT, of which £244m in estimated to be attributable to HSBC UK Bank plc.


25	Finance lease receivables

The group leases a variety of assets to third parties under finance leases, including transport assets, 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.


	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 receivables1
– No later than one year	1,363	(117)	1,246	1,256	(87)	1,169
– One to two years	1,049	(82)	967	878	(62)	816
– Two to three years	728	(50)	678	680	(40)	640
– Three to four years	376	(28)	348	387	(24)	363
– Four to five years	184	(17)	167	176	(14)	162
– Later than 5 years	360	(55)	305	330	(57)	273
31 Dec2	4,060	(349)	3,711	3,707	(284)	3,423

1Finance leases receivables are disclosed within ‘Loans and advances to customers’ in the balance sheet.

2ECL of £27m (2022: £23m) is held in respect of loans and advances under Finance lease receivables.


26	Legal proceedings and regulatory matters

The group is party to legal proceedings and regulatory matters arising out of its normal business operations. Apart from the matters described

below, the group considers that none of these matters are material. The recognition of provisions is determined in accordance with the

accounting policies set out in Note 1 of the Annual Report and Accounts 2023. 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. Where an individual provision is material, the fact that a provision has been made is stated and

quantified. 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.

PPI

Although the FCA deadline for bringing PPI complaints has passed, new litigation for historic PPI mis-selling is initiated.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of this matter, which could be significant.

Film Finance litigation

In June 2020, two separate investor groups issued claims against HSBC UK (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 UK to predict the resolution of these matters, including the

timing or any possible impact on HSBC UK, which could be significant.

UK collections and recoveries investigation

Since 2019, the FCA has been investigating HSBC Bank plc’s, HSBC UK’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.

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'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, which has been paid, and this matter is now closed.

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 HSBC UK and HINV, certain other 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 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.

Notes on the financial statements


120	HSBC UK Bank plc Annual Report and Accounts 2023

Based on the facts currently known, it is not practicable at this time to predict the resolution of this matter, including the timing or any possible

impact on HSBC UK, which could be significant.


27	Related party transactions

The immediate and ultimate parent company of the group is HSBC Holdings plc, which is incorporated in England.

Copies of the Group financial statements may be obtained from the following address:

HSBC Holdings plc

8 Canada Square

London E14 5HQ

The group’s related parties include the parent, fellow subsidiaries, joint ventures, post-employment benefit plans for HSBC UK employees,

KMP of the Company and its ultimate parent company, HSBC Holdings plc, close family members of KMP and entities which are controlled,

jointly controlled or significantly influenced by KMP or their close family members.

Particulars of transactions between the group and its related parties are tabulated below in accordance with IAS 24 ‘Related party disclosures’.

The disclosure of the year-end balance and the highest amounts outstanding during the year are considered to be the most meaningful

information to represent the amount of the transactions and outstanding balances during the year.

Key Management Personnel

The KMP of the Company are defined as those persons having authority and responsibility for planning, directing and controlling the activities of

the Company and the group, and include the Directors of the Company, certain senior executives of the Company, directors of HSBC Holdings

plc and certain senior executives of HSBC Holdings plc. The emoluments of those KMP who are not directors or senior executives of the

Company are paid by other Group companies who make no recharge to the Company. It is therefore not possible to make a reasonable

apportionment of their emoluments in respect of services they have provided to the Company during the year. Accordingly, no emoluments in

respect of these KMP are included in the following disclosure.

The table below represents the compensation for KMP (Directors and certain senior executives) of the Company in exchange for services

rendered to the Company for the period they served during the year.


Compensation of Key Management Personnel
	2023	2022
	£000	£000
Short-term employee benefits	10,960	9,306
Post-employment benefits	19	12
Other long-term employee benefits	841	1,179
Share-based payments	2,808	2,046
Year ended 31 Dec	14,628	12,543


Advances and credits, guarantees and deposit balances during the year with Key Management Personnel1
	2023		2022
	Balance at 31 Dec	Highest amounts outstanding during year	Balance at 31 Dec	Highest amounts outstanding during year
	£m	£m	£m	£m
Advances and credits	9	11	10	11
Deposits	5	17	8	27

1Includes close family members and entities which are controlled or jointly controlled by KMP or their close family members.

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.

In addition to the requirements of IAS 24, particulars of advances (loans and quasi-loans), credits and guarantees entered into by the bank and

its subsidiaries with Directors of the Company are required to be disclosed pursuant to section 413 of the Companies Act 2006. Under the

Companies Act, there is no requirement to disclose transactions with other KMP.


Transactions with Directors: advances, credits and guarantees (Companies Act 2006)
	2023	2022
	Balance at 31 Dec	Balance at 31 Dec
	£000	£000
Loans	5,118	6,677


HSBC UK Bank plc Annual Report and Accounts 2023	121

Other related parties


Transactions and balances during the year with KMP of the bank’s ultimate parent company1,2
	2023		2022
	Balance at 31 Dec	Highest amounts outstanding during the year	Balance at 31 Dec	Highest amounts outstanding during the year
	£m	£m	£m	£m
Advances and credits	—	1	2	6
Deposits	14	33	12	30

1Excludes those who are also KMP of the Company.

2 Includes close family members and entities which are controlled or jointly controlled by the KMP or their close family members.

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.


Transactions and balances during the year with the joint venture
	2023		2022
	Balance at 31 Dec	Highest balance during the year	Balance at 31 Dec	Highest balance during the year
	£m	£m	£m	£m
Unsubordinated amounts due from the joint venture	74	76	74	115
Amounts due to joint venture	47	70	42	43
Guarantees and commitments	237	252	219	244

The group provides certain banking and financial services to its joint venture, including loans, overdrafts, interest and non-interest- bearing

deposits and current accounts. Details of the interest in the joint venture are given in Note 12.


The group’s transactions and balances during the year with HSBC Holdings plc and subsidiaries of HSBC Holdings plc
	2023				2022
	Due to/from HSBC Holdings plc		Due to/from subsidiaries of HSBC Holdings plc		Due to/from HSBC Holdings plc		Due to/from subsidiaries of HSBC Holdings plc
	31 Dec	Highest balance	31 Dec	Highest balance	31 Dec	Highest balance	31 Dec	Highest balance
	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Derivatives	—	—	28	63	—	—	49	161
Loans and advances to banks	—	—	392	1,311	—	—	528	872
Reverse repos	—	—	400	495	—	—	—	3,085
Prepayments and accrued income	—	—	3	9	—	—	9	17
Other assets	—	1	573	935	1	1	935	935
Total related party assets at 31 Dec	—	1	1,396	2,813	1	1	1,521	5,070
Liabilities
Deposits by banks	—	—	464	713	—	—	378	1,238
Customer accounts	—	—	2,036	2,280	—	—	2,104	2,104
Repos	—	—	330	900	—	—	511	1,610
Other liabilities	54	54	259	800	40	40	278	432
Accruals & Deferred Income	203	203	6	8	89	140	5	40
Derivatives	—	—	22	54	—	—	42	84
Subordinated liabilities	14,598	14,598	—	—	12,349	12,648	—	—
Total related party liabilities at 31 Dec	14,855	14,855	3,117	4,755	12,478	12,828	3,318	5,508

The group routinely enters into related party transactions with other entities in the HSBC Group. These include transactions to facilitate third-

party transactions with customers, transactions for internal risk management, and other transactions relevant to HSBC Group processes. These

transactions and 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. The group's income statement included interest

payable to HSBC Holdings plc of £513m (2022: £325m) and general and administrative expenses payable to other subsidiaries of HSBC

Holdings plc of £1,724m (2022: £1,823m).

Notes on the financial statements


122	HSBC UK Bank plc Annual Report and Accounts 2023


The bank's transactions and balances during the year with HSBC UK Bank plc subsidiaries, HSBC Holdings plc and subsidiaries of HSBC Holdings plc
	2023						2022
	Due to/from subsidiaries of HSBC UK Bank plc subsidiaries		Due to/from HSBC Holdings plc		Due to/from subsidiaries of HSBC Holdings plc		Due to/from subsidiaries of HSBC UK Bank plc subsidiaries		Due to/from HSBC Holdings plc		Due to/from subsidiaries of HSBC Holdings plc
	31 Dec	Highest balance	31 Dec	Highest balance	31 Dec	Highest balance	31 Dec	Highest balance	31 Dec	Highest balance	31 Dec	Highest balance
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Derivatives	—	2	—	—	28	63	—	—	—	—	49	161
Loans and advances to banks	5,686	6,203	—	—	391	1,231	2,953	2,966	—	—	527	871
Loans and advances to customers	8,051	8,307	—	—	—	—	8,232	8,313	—	—	—	—
Reverse repos	—	—	—	—	400	495	—	—	—	—	—	3,085
Prepayments and accrued income	80	80	—	—	3	9	37	37	—	—	9	17
Other assets	1,006	1,187	—	1	572	935	1,040	1,068	1	1	935	935
Total related party assets at 31 Dec	14,823	15,779	—	1	1,394	2,733	12,262	12,384	1	1	1,520	5,069
Liabilities
Deposits by banks	3,276	3,276	—	—	464	673	898	1,053	—	—	378	1,238
Customer accounts	491	678	—	—	2,036	2,280	381	381	—	—	2,104	2,104
Repos	—	—	—	—	330	900	—	—	—	—	511	1,610
Derivatives	—	5	—	—	22	54	—	—	—	—	42	84
Other liabilities	16	152	54	54	253	796	11	23	40	40	274	428
Accruals & Deferred Income	25	26	203	203	6	8	5	10	89	140	5	40
Subordinated liabilities	—	—	14,598	14,598	—	—	—	—	12,349	12,648	—	—
Total related party liabilities at 31 Dec	3,808	4,137	14,855	14,855	3,111	4,711	1,295	1,467	12,478	12,828	3,314	5,504

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

The HSBC Bank (UK) Pension Scheme has placed deposits of £87m (2022: £59m) with HSBC UK, earning interest of £0.5m (2022: £0.1m).

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.


28	Business acquisitions

Silicon Valley Bank UK Limited (now HSBC Innovation Bank Limited)

On 13 March 2023, HSBC UK acquired SVB UK for £1, acquiring 100% of the equity and thereby obtaining control. The acquisition was funded

from existing resources and brought the staff, assets and liabilities of SVB UK into the HSBC UK portfolio.On acquisition, we performed a

preliminary assessment of the fair value of the assets and liabilities purchased. We established a provisional 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 £134m. The provisional gain

on acquisition of £1,307m represents the difference between the consideration paid of £1 and the net assets acquired. This gain could change

as further due diligence is performed within 12 months of the acquisition, as allowed by IFRS 3 'Business Combinations'.

HSBC Innovation Bank Limited contributed £362m of revenue and £121m to the consolidated profit of HSBC UK 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 twelve months to 31 December 2023 consolidated revenue would

have been £10,927m and consolidated profit after tax £5,308m. In determining these amounts, management has assumed that the fair value

adjustments, determined previously, that arose on acquisition would have been the same if the acquisition had occurred on 1 January 2023.


HSBC UK Bank plc Annual Report and Accounts 2023	123

The details of the business combination as follows:


	£m
Fair value of consideration transferred	—
Recognised fair value of identifiable assets acquired and liabilities assumed at the acquisition date
Assets
Cash and balances at central banks	589
Items in course of collection from other banks	302
Loans and advances to banks	147
Loans and advances to customers	5,369
Financial investments	2,540
Other assets	391
Total assets	9,338
Liabilities
Customer accounts	7,400
Repurchase agreements	403
Other liabilities	228
Total liabilities	8,031
Fair value of identifiable net assets acquired	1,307
Provisional gain on acquisition	1,307
Consideration transferred settled in cash	—
Cash and cash equivalents acquired	1,023
Net cash inflow on acquisition	1,023
Acquisition costs charged to expenses	6


29	Events after the balance sheet date

These accounts were approved by the Board of Directors on 20 February 2024 and authorised for issue.

On 9 February 2024, the Directors resolved to pay an interim dividend to ordinary shareholders of £1,412m in respect of the financial year

ending 31 December 2023. No liability is recognised in the financial statements in respect of this dividend.

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 £57m on these entities, the majority

of which was borne by HSBC Bank plc, had previously been fully provided for and has now been paid.

In its assessment of events after the balance sheet date, HSBC UK has considered and concluded that no material events have occurred

resulting in adjustments to the financial statements.


30	HSBC UK Bank plc’s subsidiaries and joint ventures

In accordance with section 409 of the Companies Act 2006 a list of HSBC UK Bank plc subsidiaries and joint ventures, the registered office

address and the effective percentage of equity owned at 31 December 2023 is disclosed below.

Unless otherwise stated, the share capital comprises ordinary or common shares which are held by HSBC UK Bank plc subsidiaries. The

ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC UK Bank plc unless otherwise

indicated.

HSBC UK Bank plc's registered office address is:

HSBC UK Bank plc

1 Centenary Square

Birmingham B1 1HQ

United Kingdom

Notes on the financial statements


124	HSBC UK Bank plc Annual Report and Accounts 2023

Subsidiaries

The undertakings below are consolidated by HSBC UK Bank plc.

Unless otherwise stated the place of incorporation is England and

Wales.


Subsidiaries	% of share class held by immediate parent company (or by HSBC UK Bank plc where this varies)	Footnotes
Assetfinance December (F) Limited	100.00	3
Assetfinance June (D) Limited	100.00	3
Assetfinance March (D) Limited	100.00	3
Assetfinance September (G) Limited	100.00	3
B&Q Financial Services Limited	100.00	1, 4
Canada Square Nominees (UK) Limited	100.00	1, 4
HSBC Bank Pension Trust (UK) Limited	100.00	1, 4
HSBC Branch Nominee (UK) Limited	100.00	1, 3
HSBC UK Covered Bonds LLP	N/A	0, 3
HSBC Equipment Finance (UK) Limited	100.00	1, 3
HSBC Executor & Trustee Company (UK) Limited	100.00	3
HSBC Finance Limited	100.00	1, 4
HSBC Innovation Bank Limited	100.00	1,7
HSBC Invoice Finance (UK) Limited	100.00	1, 3
HSBC Private Bank (UK) Limited	100.00	1, 4
HSBC Trust Company (UK) Limited	100.00	1, 4
HSBC UK Client Nominee Limited	100.00	1, 3
HSBC UK Societal Projects Limited	100.00	1,3
HSBC Wealth Client Nominee Limited	100.00	1, 3
John Lewis Financial Services Limited	100.00	1, 4
Marks and Spencer Financial Services plc	100.00	1, 5
Marks and Spencer Unit Trust Management Limited	100.00	1, 5
Midland Bank (Branch Nominees) Limited	100.00	1, 3
Midland Nominees Limited	100.00	3
St Cross Trustees Limited	100.00	3
Turnsonic (Nominees) Limited	100.00	3

Joint venture

The undertaking below is a Joint Venture and equity accounted.


Joint venture	% of share class held by immediate parent company (or by HSBC UK Bank plc where this varies)	Footnotes
Vaultex UK Limited	50.00	2, 6


Footnotes
0	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	Directly held by HSBC UK Bank plc
2	Financial year ended 6 October 2023
Registered Offices
3	1 Centenary Square, Birmingham, United Kingdom, B1 1HQ
4	8 Canada Square, London, United Kingdom, E14 5HQ
5	Kings Meadow Chester Business Park, Chester, United Kingdom, CH99 9FB
6	All Saints Triangle, Caledonian Road, London, United Kingdom, N1 9UT
7	All Alphabeta, 14-18 Finsbury Square, London, United Kingdom, EC2A 1BR


HSBC UK Bank plc Annual Report and Accounts 2023	125

Reconciliation of alternative performance measures

Return on equity and return on tangible equity

RoTE is computed as reported profit, divided by average reported equity adjusted for goodwill and intangibles impairment for the period. The

adjustment to reported results and reported equity excludes amounts attributable to non-controlling interests. We provide RoTE in addition to

RoE as a way of assessing our performance, which is closely aligned to our capital position. The measures are calculated in US dollars in line

with the standard HSBC Group-wide calculation methodology.

The following table details the adjustments made to the reported results and equity:


Return on Equity and Return on Tangible Equity
	Year ended
	31 Dec	31 Dec
	2023	2022
	$m	$m
Profit
Profit attributable to the ordinary shareholders of the parent company	6,226	3,385
Profit attributable to the ordinary shareholders, excluding goodwill and other intangible assets impairment	6,226	3,385
Equity
Average shareholders’ equity	30,016	28,757
Effect of average preference shares, additional Tier 1 and other equity instruments	(2,726)	(2,722)
Average ordinary shareholders’ equity	27,290	26,035
Effect of goodwill and other intangibles (net of deferred tax)	(5,342)	(5,249)
Average tangible ordinary shareholders' equity	21,948	20,786
Ratio	%	%
Return on equity	22.8	13.0
Return on average tangible equity1,2	28.4	16.3

1Excluding the provisional gain on acquisition of SVB UK the RoTE was 22.4%.

2 Under IAS 19 HSBC UK holds a pension fund surplus, and records pension income in the Income Statement. The IAS 19 pension fund surplus

increases Tangible Equity but not CET1. In the event that the IAS 19 pension fund surplus was zero, RoTE would be 32.4% (25.5% excluding the

provisional gain on acquisition of SVB UK) (2022: 17.7%), we refer to this as Pension Adjusted RoTE.

Other information


126	HSBC UK Bank plc Annual Report and Accounts 2023

Abbreviations


Currencies
£	British pound sterling
€	Euro
$	United States dollar
Abbreviations
4Q24	Fourth quarter of 2024
2Q23	Second quarter of 2023
A
AGM	Annual General Meeting
AI	Artificial Intellegence
AIEA	Average interest-earning assets
ALCO	Asset and Liability Management Committee
AT1	Additional tier 1
B
BACS	Bankers' Automated Clearing System
Basel	Basel Committee on Banking Supervision
Basel III	Basel Committee’s reforms to strengthen global capital and liquidity rules
BoE	Bank of England
Bps	Basis points. One basis point is equal to one hundredth of a percentage point
C
CBDC	Central Bank Digital Currency
CAPM	Capital asset pricing model
CBDC	Central Bank Digital Currencies
CEO	Chief Executive Officer
CET1	Common equity tier 1
CFO	Chief Financial Officer
CGU	Cash-generating Unit
CMB	Commercial Banking
CODM	Chief Operating Decision Maker
CDI	CORE Deposit Intangible
CRR	Customer risk rating
CRR II	Revised Capital Requirements Regulation and Directive, as implemented
CPI	Consumer Price Index
D
DBS	Digital Business Services
DCF	Discounted cash flows
DPD	Days past due
DBO	Defined Benefit Obligation
DECL	Disclosures about Expected Credit Losses
DRA	Dynamic Risk Assessment
E
EAD	Exposure at default
EBA	European Banking Authority
EC	European Commission
ECL	Expected credit losses. In the income statement, ECL is recorded as a change in expected credit losses and other credit impairment charges. In the balance sheet, ECL is recorded as an allowance for financial instruments to which only the impairment requirements in IFRS 9 are applied.
EIR	Effective interest rate
ESG	Environmental, social and governance
EU	European Union
Euribor	Euro interbank offered rate
EVE	Economic value of equity
EPC	Energy Performance Certificate
F
FCA	Financial Conduct Authority (UK)
FSCS	Financial Services Compensation Scheme
FTE	Full-time equivalent staff
FVOCI	Fair value through other comprehensive income
FY	Full Year
FY22	Full Year 2022


FY23	Full Year 2023
G
GBM	Global Banking and Markets
GDP	Gross domestic product
GPSP	Group Performance Share Plans
group	HSBC UK Bank plc together with its subsidiary undertakings
Group	HSBC Holdings plc together with its subsidiary undertakings
GTRF	Global Trade and Receivables Finance
H
HMRC	HM Revenue and Customs
HMT	His Majesty’s Treasury
HQLA	High-quality liquid assets
HSBC Group	HSBC Holdings plc together with its subsidiary undertakings
HSBC Holdings plc	HSBC Holdings plc, the parent company of HSBC UK
HSBC UK	HSBC UK Bank plc together with its subsidiary undertakings
HINV	HSBC Innovation Bank Limited, formerly Silicon Valley Bank UK Limited
HR	Human Resources
I
IAS	International Accounting Standards
IASB	International Accounting Standards Board
Ibor	Interbank offered rate
ICAAP	Internal capital adequacy assessment process
IFRS® Accounting Standards	International Financial Reporting Standards as issued by the IASB
IFRS® Sustainability Disclosure Standards	Standards issue by the International Sustainability Standards Board (‘ISSB’)
ISSB	International Sustainability Standards Board
ILAAP	Internal liquidity adequacy assessment process
IRB	Internal ratings-based
IT	Information technology
K
KMP	Key management personnel
KPI	Key performance indicator
L
LC	Large Corporates
LCR	Liquidity coverage ratio
LFRF	Liquidity and Funding Risk management Framework
LGD	Loss given default
Libor	London interbank offered rate
LTI	Long-term incentive
LTV	Loan to value
M
MI	Management Information
MME	Mid-Market Enterprises
MREL	EU minimum requirements for own funds and eligible liabilities
M&S	Marks and Spencer Financial Services plc
N
NII	Net interest income
NPS	Net Promoter Score
NSFR	Net stable funding ratio
O
OCI	Other comprehensive income
P
PD	Probability of default
PLCA	Purpose Led Conduct Approach
POCI	Purchased or originated credit impaired
PPA	Power Purchase Agreement


HSBC UK Bank plc Annual Report and Accounts 2023	127


PPI	Payment protection insurance
PRA	Prudential Regulation Authority
PSR	Payment Systems Regulator
PIV	Pooled Investment Vehicles
PwC	PricewaterhouseCoopers LLP and its network of firms
R
RAS	Risk Appetite Statement
Revenue	Net operating income before change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit provisions, also referred to as revenue
RMM	Risk Management Meeting
RoE	Return on average ordinary shareholders’ equity
RoTE	Return on average tangible equity
RPI	Retail Price Index
RWA	Risk-weighted asset
S
SAF	Subsidiary Accountability Framework
SME	Small and medium-sized enterprise
SOFR	Secured Overnight Financing Rate
Sonia	Sterling Overnight Index Average
SPPI	Solely payments of principal and interest
STD	Standardised Approach
SVB UK	Silicon Valley Bank UK Limited
T
TCFD	Taskforce on Climate-Related Financial Disclosures
U
UK	United Kingdom
US	United States of America
V
VaR	Value at risk
VAT	Value-added tax
VIU	Value in use
W
WPB	Wealth and Personal Banking
Y
YoY	Year-on-year