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Changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates; volatility in equity markets; lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks’ policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit and price competition in the market segments we serve; and deviations from the market and economic assumptions that form the basis for our ECL measurements.

•

Changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for our products and services; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms.

•

Factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; our success in addressing operational, legal and regulatory, and litigation challenges; and the other risks and uncertainties we identify in ‘top and emerging risks’ on pages 16 and 17.

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–	a loss on disposals, acquisitions and investment in new businesses of $0.1bn in 1H18, mainly relating to the early redemption of subordinated debt in the US. This compared with a gain of $0.4bn in 1H17, largely related to the disposal of our membership interest in Visa Inc.; and

–	lower adverse fair value movements on financial instruments (down $0.1bn).

–	the non-recurrence of costs to achieve of $1.7bn in 1H17; and

–	customer redress programme costs of $0.1bn in 1H18, compared with $0.3bn in 1H17.

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–	settlements and provisions in connection with legal matters of $0.8bn in 1H18, compared with a net release of $0.3bn in 1H17.

–	the period-on-period effects of foreign currency translation; and

–	the effect of significant items that distort period-on-period comparisons, which are excluded in order to understand better the underlying trends in the business.

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In RBWM, revenue increased by $0.8bn or 8%, with growth in both Retail Banking and Wealth Management. In Retail Banking, revenue grew in current accounts, savings and deposits, reflecting wider margins and balance growth, primarily in Hong Kong, partly offset by lower personal lending revenue. In Wealth Management, revenue also increased mainly from investment distribution, primarily in Hong Kong reflecting increased investor confidence. This was partly offset by lower life insurance manufacturing revenue, largely from a net adverse movement in market impacts.

–	In CMB, revenue increased by $0.8bn or 12%, notably in Global Liquidity and Cash Management (‘GLCM’), as we benefited from wider deposit margins and higher balances, primarily in Hong Kong and the US. In addition, revenue increased in Credit and Lending (‘C&L’), notably in the UK, North America and Latin America as lending growth more than offset narrower margins.

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In GB&M, revenue was $0.1bn or 1% higher. Strong growth in GLCM and Securities Services reflected interest rate rises and deposit balance growth, primarily in Asia. Revenue also increased in Principal Investments, from the revaluation of certain investments. These increases were partly offset by lower revenue in Global Markets as Rates and Credit revenue fell due to narrower margins and lower activity in emerging markets, partly offset by an increase in Foreign Exchange revenue.

–	In GPB, revenue was $0.1bn or 6% higher, mainly in Hong Kong from higher deposit revenue as we benefited from wider margins, and from higher investment revenue, reflecting increased client activity.

–

In Corporate Centre, we recorded net negative revenue of $0.2bn in 1H18, compared with revenue of $1.0bn in 1H17. This primarily reflected lower revenue in Central Treasury due to higher adverse fair value movements relating to the hedging of our long-term debt, a reduction in Balance Sheet Management (‘BSM’) revenue and a loss arising from swap mark-to-market movements following a bond reclassification under IFRS 9 ‘Financial Instruments’. Revenue from legacy portfolios also decreased, mainly driven by losses on portfolio disposals.

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–	Continued progress with our digital transformation through the enhancement of customer journeys and product features, including the PayMe app in Hong Kong, which has one million users, and the Connected Money app in the UK, which has had 100,000 downloads since its launch in May 2018. Over 80% of global equity sales and a significant part of retail sales are made digitally.

–	Delivering on unsecured lending growth, supported by new offers and marketing initiatives. Strong progress in new credit cards issuance in 1H18, notably in the UK (282,000), mainland China (221,000, including 101,000 in the PRD) and the US (135,000).

–	Higher current accounts, savings and deposits, up $0.8bn due to wider margins and balance growth, mainly in Hong Kong.

–	Lower personal lending revenue, which reduced by $0.2bn, despite growth in total lending balances of $27bn, or 8% compared with 1H17. This reflected the effects of mortgage margin compression from higher funding costs, mainly in the UK, Hong Kong, mainland China and the US. Lower credit cards revenue reflected margin compression in Turkey and policy tightening in Mexico and the UAE.

–	Higher investment distribution revenue, up $0.3bn, reflecting higher sales of retail securities and mutual funds, notably in Hong Kong, following increased investor confidence.

–	Life insurance manufacturing generated growth in annualised new business premiums (up 22%), which was more than offset by net adverse market impacts of $0.3bn. Therefore, total life insurance manufacturing revenue decreased by $0.2bn.

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–	Corporate customer value from our international subsidiary banking proposition grew 18%* compared with 1H17, demonstrating the value of our global network.

–	We further strengthened our leadership position in GLCM through investment in our digital capabilities, including mobile facial recognition technology, and collaboration with PayPal to help companies manage their liquidity and payments in real time.

–	We continue to embrace new technologies in Global Trade and Receivables Finance (‘GTRF’), demonstrated through the completion of four live trades on the we.trade blockchain platform, the world’s first commercially scalable Distributed Ledger Technology platform for open account trade.

–	In GLCM, revenue increased by $0.5bn or 20%, primarily in Hong Kong and the US, mainly reflecting wider margins and increased balances, with notable growth in Asia, North America and Europe.

–	In C&L, revenue was $0.1bn or 5% higher. Revenue grew in the UK, North America and Latin America as lending growth more than offset narrower margins. Revenue also grew in Asia, as balance growth in Hong Kong more than offset the effects of margin compression, in part reflecting competitive pressures.

–	In GTRF, revenue was $18m or 2% higher, driven by balance sheet growth in the UK and Asia, mainly in mainland China. This was partly offset by a reduction in revenue in the Middle East and North Africa (‘MENA’), reflecting the effects of managed customer exits in the UAE.

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–	Leading the way with the digitisation of Trade Finance by completing the first transaction using blockchain Distributed Ledger Technology in the banking industry.

–	We acted as green structuring adviser on a $1.25bn green sukuk bond for the Republic of Indonesia, the first ever international offering of green securities by an Asian sovereign.

–	Strong GLCM revenue growth of $0.2bn, or 19%, across all regions, mainly in Asia, from continued momentum since 2017, benefiting from higher average balances since 1H17 (up 7%) and higher interest rates.

–	Double-digit revenue growth in Securities Services (up $0.1bn) reflected growth of over 10% in both assets under custody and assets under administration since 1H17, primarily in Asia as we continued to win new business. The increase in revenue was also from higher interest rates, which more than offset margin compression.

–	Principal Investments revenue increased by $0.1bn, reflecting the revaluation of certain investments.

–

Global Banking revenue was $24m or 1% higher, as Leveraged and Acquisition Finance continued to perform well, with notable client wins, and favourable movements in Credit and Lending portfolio hedges. We grew our market share in Debt Capital Markets (‘DCM’), but this was more than offset by lower corporate issuances. Despite lower lending revenue, overall performance was positive, reflecting growth in fee business.

–	Global Markets revenue decreased by $0.4bn. In Fixed Income, Rates and Credit revenue fell by $0.4bn and $0.2bn respectively, as a result of narrower margins and lower activity in emerging markets. By contrast, Foreign Exchange revenue grew by $0.2bn or 11%, with increased client volumes, continuing to build on a strong performance in 2017.

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–	Net new money inflows of $9bn in key markets targeted for growth, of which more than 60% was from collaboration with our other global businesses. Net new money inflows were mainly in Hong Kong, the UK and Channel Islands, Switzerland and the US.

–	Continued momentum in discretionary and advisory mandates, with strong growth in 1H18, mainly in Switzerland, Hong Kong, Germany and the US.

–	lower BSM revenue (down $0.2bn), mainly as a result of de-risking activities undertaken during 2017 in anticipation of interest rate rises, lower reinvestment yields and lower disposal gains;

–	higher adverse fair value movements ($0.2bn), relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with long-term derivatives;

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–	a loss arising from adverse swap mark-to-market movements following a bond reclassification under IFRS 9 ‘Financial Instruments’ ($0.2bn); and

–	higher interest expense on our debt (up $0.1bn), driven by both higher issuances and the higher average cost of debt issued to meet regulatory requirements.

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–	risks that we accept as part of doing business, such as credit risk and market risk;

–	risks that we incur as part of doing business, such as operational risk, which are actively managed to remain below an acceptable tolerance; and

–	risks for which we have zero tolerance, such as knowingly engaging in activities where foreseeable reputational risk has not been considered.

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1	Includes an estimate of the interest in rental expense, charges incurred in respect of subordinated liabilities and interest on preference shares.

2	Includes profit before tax, dividends received from associates and fixed charges, less share of profit in associates and joint ventures.

3	Dividends on preference shares and other equity instruments.

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*	The references identify the lines prescribed in the EBA template.

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*	The references identify the lines prescribed in the EBA template.

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(a)	Compliance with International Financial Reporting Standards

•	fair value designations for financial liabilities have been revoked where the accounting mismatch no longer exists, as required by IFRS 9; and

•	fair value designations have been revoked for certain long-dated securities where accounting mismatches continue to exist, but where HSBC has revoked the designation as permitted by IFRS 9 since it will better mitigate the accounting mismatch by undertaking fair value hedge accounting.

•

We have considered market practices for the presentation of certain financial liabilities which contain both deposit and derivative components. We have concluded that a change in accounting policy and presentation from ‘trading customer accounts and other debt securities in issue’ would be appropriate, since it would better align with the presentation of similar financial instruments by peers and therefore provide more relevant information about the effect of these financial liabilities on our financial position and performance. As a result, rather than being classified as held for trading, we will designate these financial liabilities as at fair value through profit or loss since they are managed and their performance evaluated on a fair value basis. A further consequence of this change in presentation is that the effects of changes in the liabilities’ credit risk will be presented in ‘Other comprehensive income’ with the remaining effect presented in profit or loss in accordance with Group accounting policy adopted in 2017 (following the adoption of the requirements in IFRS 9 relating to the presentation of gains and losses on financial liabilities designated at fair value).

•

Cash collateral, margin and settlement accounts have been reclassified from ‘Trading assets’ and ‘Loans and advances to banks and customers’ to ‘Prepayments, accrued income and other assets’ and from ‘Trading liabilities’ and ‘Deposits by banks’ and ‘Customer accounts‘ to ‘Accruals, deferred income and other liabilities’. The change in presentation for financial assets is in accordance with IFRS 9 and the change in presentation for financial liabilities is considered to provide more relevant information, given the change in presentation for the financial assets. The change in presentation for financial liabilities has had no effect on measurement of these items and therefore on retained earnings or profit for any period.

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•	Certain stock borrowing assets have been reclassified from ‘Loans and advances to banks and customers’ to ‘Trading assets’. The change in measurement is a result of the determination of the global business model for this activity and will align the presentation throughout the Group.

•

Prior to 2018, foreign exchange exposure on some financial instruments designated at fair value was presented in the same line in the income statement as the underlying fair value movement on these instruments. In 2018, we have grouped the presentation of the entire effect of foreign exchange exposure in profit or loss and presented it within ‘Net income from financial instruments held for trading or managed on a fair value basis’. Comparative data has been re-presented.

•	loans and advances to banks and to customers and non-trading reverse repurchase agreements that are classified as loans and receivables under IAS 39 are measured at amortised cost under IFRS 9;

•	financial assets designated at fair value through profit and loss (‘FVPL’) remain at FVPL, because it is required under IFRS 9 or the designation will continue;

•	debt securities classified as available for sale are measured at amortised cost or FVOCI, with a small minority at FVPL either because of their contractual cash flow characteristics or the business model within which they are held;

•	debt securities classified as held to maturity are measured at amortised cost;

•	treasury and other eligible bills classified as available for sale are measured at amortised cost or FVOCI depending upon the business model in which they are held; and

•

all equity securities remain measured at fair value. A significant majority have fair value movements shown in profit or loss, while a minority have fair value movements presented in other comprehensive income. The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other similar investments where HSBC holds the investments other than to generate a capital return.

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(b)	Use of estimates and judgements

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(c)	Composition of Group

(d)	Future accounting developments

(e)	Going concern

(f)	Accounting policies

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1	Discretionary coupons are paid quarterly on the perpetual subordinated capital securities, in denominations of $25 per security.

2	Discretionary coupons are paid twice a year on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security in each security’s issuance currency.

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1	Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

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1	See Note 7 on the Financial Statements on page 98.

1	Designated at fair value through profit or loss.

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1	Included in ‘Available-for-sale investments: fair value gains/(losses)’ for prior years and ‘financial investments: fair value gains/(losses)’ in the current year and ‘Exchange differences’ in the consolidated statement of comprehensive income.

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1	Derivatives, ‘trading assets and trading liabilities’ are presented as one category to reflect the manner in which these financial instruments are risk-managed.

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1	Collateralised loan obligation/collateralised debt obligation.

2	’Other’ includes a range of smaller asset holdings.

3	See notes on page 213 of the Annual Report and Accounts 2017.

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1	This amount is yet to be recognised in the consolidated income statement.

1	‘Other Instruments’ are comprised of loans and advances.

2	Fair value $61.9bn (31 December 2017: $54.1bn).

3	Categories of financial instruments are disclosed under IFRS 9 at 30 June 2018. These are not directly comparable with 31 December 2017, where the instruments were categorised in accordance with IAS 39.

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1	Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).

•	Long-term profit growth rate: 3% (31 December 2017: 3%) for periods after 2021, which does not exceed forecast GDP growth in mainland China and is within the range forecast by external analysts.

•	Long-term asset growth rate: 3% (31 December 2017: 3%) for periods after 2021, which is the rate that assets are expected to grow to achieve long-term profit growth of 3%.

•	Discount rate: 11.85% (31 December 2017: 11.85%), which is based on a capital asset pricing model (‘CAPM’) calculation for BoCom, using market data. Management also compares rates derived from the CAPM with discount rates from external sources. The discount rate used is within the range of 11.3% to 12.7% (31 December 2017: 10.2% to 13.4%) indicated by external sources.

•	Loan impairment charge as a percentage of customer advances: ranges from 0.70% to 0.72% (31 December 2017: 0.66% to 0.82%) in the short to medium term, and is based on the forecasts disclosed by external analysts. For periods after 2021, the ratio is 0.70% (31 December 2017: 0.70%), slightly higher than the historical average.

•	Risk-weighted assets as a percentage of total assets: 62% (31 December 2017: 62%) for all forecast periods. This is slightly higher than BoCom’s recent actual results.

•	Cost-income ratio: ranges from 37.3% to 38.0% (31 December 2017: 37.1% to 38.0%) in the short to medium term. This is consistent with the forecasts disclosed by external analysts.

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1

The contractual commitments provision at 31 December 2017 represented IAS 37 provisions on off-balance sheet loan commitments and guarantees for which expected credit losses are provided following transition to IFRS 9 on 1 January 2018. Further analysis of the movement in the expected credit loss provision is disclosed within the 'Reconciliation of gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees' table on page 53.

1	Excludes invalid claims for which no PPI policy exists.

2	Claims include inbound and responses to outbound contact.

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1

Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 1,864, John Lipsky has an interest in 3,233, Heidi Miller has an interest in 857 and Jackson Tai has an interest in 9,194 listed American Depositary Shares (‘ADSs’), which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2

Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out on the following pages. At 30 June 2018, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans, were: John Flint – 1,281,533; Stuart Gulliver – 6,712,018; Iain Mackay – 2,505,919; and Marc Moses – 3,218,740. Each Director’s total interests represents less than 0.04% of the shares in issue and 0.04% of the shares in issue excluding treasury shares.

3	Jackson Tai’s holding includes a non-beneficial interest in 10,350 shares of which he is custodian.

4	Stuart Gulliver retired from the Board on 20 February 2018. Phillip Ameen, Joachim Faber and John Lipsky retired from the Board on 20 April 2018. Their total interests are as at their retirement date. All figures are as at 30 June 2018 or on the retirement of the Director unless otherwise stated. John Flint’s opening interests are as at 21 February 2018, the date he joined the Board.

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1	Includes additional shares arising from dividend equivalents.

2	Awards granted in March 2013 are subject to service conditions and satisfactory completion of the AML DPA, as determined by the Committee. The AML DPA condition ended on the fifth anniversary of the award date.

3	At the date of the award (2 March 2015) the market value per share was £5.83. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. On 14 March 2018, the third tranche of the award vested. On that date, the market value per share was £6.9321.

4	At the date of the award (29 February 2016), the market value per share was £4.60. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. On 13 March 2018, the second tranche of the award vested. On that date, the market value per share was £7.0074. The balance will vest in 2019.

5	The non-deferred award vested immediately on 26 February 2018. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. At the date of vesting, the market value per share was £7.2146.

6	At the date of the award (27 February 2017), the market value per share was £6.50. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date. The award will vest in five equal annual tranches commencing in March 2020.

7	Stuart Gulliver retired from the Board on 20 February 2018. His total interests are as at his retirement date. John Flint’s opening interests are as at 21 February 2018, the date he joined the Board.

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1	Includes additional shares arising from dividend equivalents.

2	Stuart Gulliver retired from the Board on 20 February 2018. His total interests are as at his retirement date. John Flint’s opening interests are as at 21 February 2018, the date he joined the Board.

1	At the date of award, 26 February 2018, the market value per share was £7.234.

2	Stuart Gulliver retired from the Board on 20 February 2018. His total interests are as at his retirement date.

1	Kathleen Casey has an interest in 1,883 and Heidi Miller has an interest in 865 ADSs, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2	Additional shares arising from scrip dividends.

3	Comprises dividend equivalents on deferred share awards, GPSP awards and long-term incentive awards granted under the HSBC Share Plan 2011.

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1	The weighted average closing price of the shares immediately before the dates on which options were exercised was £7.2456.

2	The weighted average closing price of the shares immediately before the dates on which options were exercised was £7.7119.

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•

BlackRock, Inc. gave notice on 22 May 2018 that on 21 May 2018 it had an indirect interest in HSBC Holdings of 1,167,291,912 ordinary shares, qualifying financial instruments with 94,198,726 voting rights that may be acquired if the instruments are exercised or converted, and financial instruments with similar economic effect to qualifying financial instruments which refer to 10,781,765 voting rights. These represented 5.81%, 0.46% and 0.05%, respectively, of the total voting rights at 21 May 2018.

•	Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that on 4 December 2017 it had an indirect interest in HSBC Holdings ordinary shares of 1,007,946,172, representing 5.04% of the total voting rights at that date.

•	BlackRock, Inc. gave notice on 22 May 2018 that on 17 May 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,382,665,285 shares and a short position of 6,264,297 representing 6.78% and 0.03%, respectively, of the ordinary shares in issue at 17 May 2018.

•	JPMorgan Chase & Co. gave notice on 1 March 2018 that on 26 February 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 777,156,316 shares, a short position of 135,523,161 shares, and a lending pool of 443,282,346 shares. These represented 3.82%, 0.66% and 2.17%, respectively, of the ordinary shares in issue at 26 February 2018.

•	Ping An Asset Management Co., Ltd. gave notice on 13 February 2018 that on 9 February 2018 it had a long position of 1,253,254,972 shares, representing 6.17% of the ordinary shares in issue at 9 February 2018.

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1	Removals from or transfers to the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register will not be permitted on these dates.

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