Standard Chartered PLC

National Storage Mechanism | Additional information RNS Number : 2465E Standard Chartered PLC 23 February 2024 Standard Chartered PLC - Additional Financial information Highlights Standard Chartered PLC (the Group) today releases its results for the year ended 31 December 2023. The following pages provide additional information related to the announcement. Table of contents Risk review and Capital review Risk profile 2 Enterprise Risk Management Framework 67 Principal risks 74 Capital review 94 Statement of directors' responsibilities 100 Shareholder information 102 Page 1 Risk profile Credit Risk (audited) Basis of preparation Unless otherwise stated the balance sheet and income statement information presented within this section is based on the Group's management view. This is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. This view reflects how the client segments and regions are managed internally. Loans and advances to customers and banks held at amortised cost in this Risk profile section include reverse repurchase agreement balances held at amortised cost, per Note 16 Reverse repurchase and repurchase agreements including other similar secured lending and borrowing. Credit Risk overview Credit Risk is the potential for loss due to the failure of a counterparty to meet its contractual obligations to pay the Group. Credit exposures arise from both the banking and trading books. Impairment model IFRS 9 mandates an impairment model that requires the recognition of expected credit losses (ECL) on all financial debt instruments held at amortised cost, Fair Value through Other Comprehensive Income (FVOCI), undrawn loan commitments and financial guarantees. Staging of financial instruments Financial instruments that are not already credit-impaired are originated into stage 1 and a 12-month expected credit loss provision is recognised. Instruments will remain in stage 1 until they are repaid, unless they experience significant credit deterioration (stage 2) or they become credit-impaired (stage 3). Instruments will transfer to stage 2 and a lifetime expected credit loss provision is recognised when there has been a significant change in the Credit Risk compared to what was expected at origination. The framework used to determine a significant increase in credit risk is set out below. Stage 2 �� Lifetime expected credit loss �� Performing but has exhibited significant increase in Credit Risk (SICR) Stage 3 �� Credit-impaired �� Non-performing Stage 1 �� 12-month ECL �� Performing IFRS 9 expected credit loss principles and approaches The main methodology principles and approach adopted by the Group are set out in the following table. Title Supplementary Information Approach for determining expected credit losses IFRS 9 methodology Determining lifetime expected credit loss for revolving products Post model adjustments Incorporation of forward-looking information Incorporation of forward-looking information Forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact of non-linearity Judgemental adjustments and sensitivity to macroeconomic variables Significant increase in credit risk (SICR) Quantitative and qualitative criteria Assessment of credit-impaired financial assets Consumer and Business Banking clients CCIB and Private Banking clients Write-offs Transfers between stages Movement in loan exposures and expected credit losses Modified financial assets Forbearance and other modified loans Governance and application of expert credit judgement in respect of expected credit losses Page 2 Summary of performance in 2023 Loans and Advances 94 per cent (31 December 2022: 93 per cent) of the Group's gross loans and advances to customers remain in stage 1 at $273.7 billion (31 December 2022: $295.2 billion), reflecting our continued focus on high-quality origination. Stage 1 loans decreased by $21.5 billion to $274 billion (31 December 2022: $295 billion). For Corporate, Commercial and Institutional Banking (CCIB), stage 1 balances increased to 90 per cent of the gross loans and advances to customers (31 December 2022: 88 per cent), while there was an overall decrease due to reductions in the financing, insurance and non-banking sectors. Stage 1 balances for Consumer, Private and Business Banking (CPBB) decreased by $5.6 billion, mainly driven by a slowdown in mortgages sales in Korea and Hong Kong, which was partly offset by new Credit Cards and Personal Loans businesses in Asia. Stage 1 balances for Central and other items decreased by $10.8 billion due to exposure reductions to a Central Bank in the Asia region. Stage 1 cover ratio remained stable at 0.2 per cent (31 December 2022: 0.2 per cent). Stage 2 gross loans and advances to customers decreased by $1.8 billion to $11.2 billion (31 December 2022: $13 billion). This was due to CCIB exposure reductions and transfers to stage 3 in the Commercial Real Estate (CRE) sector, and exposure reductions in the Transport sector. This was partially offset by an increase in CPBB Korea and Hong Kong Mortgage portfolio and Singapore Private Banking. Higher risk exposure net increase of $1 billion from Central and other items, was due to a short-term exposure to a Central Bank in the Africa and Middle East region, which was partly offset by exposure reductions and transfers to stage 3 in CCIB. Stage 2 cover ratio increased by 0.3 per cent to 3.7 per cent (31 December 2022: 3.4 per cent). The increase was driven by Ventures due to increased delinquencies and portfolio growth mainly in Mox Bank. The increase in CCIB cover ratio was due to a decrease in expected credit losses from exposure reductions and transfers to Stage 3. The decrease in CPBB stage 2 cover ratio was mainly due to an increase in secured portfolio exposures with relatively lower Loss Given Default. Stage 3 loans decreased by $0.6 billion to $7.2 billion (31 December 2022: $7.8 billion) as a result of repayments, debt sales and write-offs in CCIB. Although the portfolio reduced year on year, China CRE clients were the major inflows this year. The CCIB stage 3 cover ratio increased by 4.5 per cent to 64 per cent as a result of repayments and incremental provisions taken (31 December 2022: 60 per cent). The CPBB stage 3 cover ratio reduced by 2.2 per cent to 51 per cent (31 December 2022: 53 per cent), due to a small exposure increase mainly in Secured wealth products. Ventures stage 3 exposures increased by $11 million to $12 million (31 December 2022: $1 million). The cover ratio after collateral remained stable at 76 per cent (31 December 2022: 76 per cent) Further details can be found in the 'Analysis of financial instruments by stage' section; 'Credit quality by client segment' section; 'Credit quality by industry' section. Stage 3 cover ratio is also disclosed in the 'Stage 3 cover ratio' and 'Credit-impaired (stage 3) loans and advances by geographic region' sections. Maximum exposure The Group's on-balance sheet maximum exposure to Credit Risk increased by $8.6 billion to $798 billion (31 December 2022: $790 billion). Cash at Central bank increased by $11.6 billion to $70 billion (31 December 2022: $58 billion) due to deposits placed with the US Federal Reserve. Loans to banks also increased by $5 billion to $45 billion (31 December 2022: $40 billion). Fair Value through profit and loss increased by $42 billion to $144 billion (31 December 2022: $103 billion), largely due to an increase in Debt Securities and Reverse Repos. This was partly offset by a $13 billion decrease in Derivative financial instruments, and a $23.7 billion decrease in loans and advances to customers to $287 billion (31 December 2022: $311 billion). Out of the $23.7 billion decrease in loans and advances to customers, a $10.5 billion reduction relates to reverse repos, and a $11 billion reduction relates to Amortised Cost Debt Securities, as part of the Group's liquidity management actions. Off-balance sheet instruments increased by $28 billion to $257 billion (31 December 2022: $229 billion), which was driven by new businesses. Further details can be found in the 'Maximum exposure to Credit Risk'section. Page 3 Analysis of stage 2 The key SICR driver that caused exposures to be classified as stage 2 remains increase in probability of default. The proportion of exposures in CCIB in stage 2 due to increased PD has decreased partly due to an increase in clients placed on non-purely precautionary early alert that have not breached PD thresholds. In CPBB, the proportion of loans in stage 2 loans from 30 days past due trigger decreased by 2 per cent to 6 per cent (31 December 2022: 8 per cent). 'Others' category includes exposures where origination data is incomplete and the exposures are getting allocated into stage 2. Further details can be found in the 'Analysis of stage 2 balances' section. Credit impairment charges The Group's ongoing credit impairment was a net charge of $508 million (31 December 2022: $836 million). For CCIB, stage 1 and 2 impairment charges decreased by $137 million to $11 million (31 December 2022: $148 million), as 2022 included Pakistan Sovereign downgrades and China CRE overlays, which was partly offset by a $102 million full release of COVID-19 overlay. In 2023, $11 million impairment charges were due to portfolio movements, including impairments on Pakistan Sovereign clients, and China CRE overlays, which was partly offset by a $13 million net release from model and methodology updates. CCIB stage 3 impairment charges decreased by $165 million to $112 million (31 December 2022: $277 million) largely due to higher releases and lower impairments on China CRE clients. In 2023, $112 million impairment charges were largely driven by impairments on China CRE clients, and releases across multiple clients. For CPBB, stage 1 and 2 impairment charges decreased by $22 million to $129 million (31 December 2022: $151 million). In 2023, $129 million impairment charges were from normal flows, largely from unsecured portfolios in China, Hong Kong, India and Singapore. This was partially offset by $21 million of COVID-19 overlay releases, including the full release of $16 million remaining COVID-19 overlays in Bahrain. CPBB stage 3 impairment charges increased by $114 million to $225 million (31 December 2022: $111 million). The increase has been driven mainly by the unsecured business due to a mix of higher bankruptcies in Singapore, Hong Kong and Korea, and portfolio growth in digital partnerships. For Ventures, stage 1 and 2 impairment charges increased by $29 million to $42 million (31 December 2022: $13 million), mainly due to portfolio growth in Mox Bank. Ventures stage 3 impairment charges increased by $40 million to $43 million (31 December 2022: $3 million), mainly due to portfolio growth in Mox Bank, and higher bankruptcies. Mitigating actions have been taken to address these. For Central and other items, stage 1 and 2 impairment charges decreased by $139 million due to a net release of $44 million (31 December 2022: $95 million) as 2022 included Pakistan Sovereign CG12 downgrades. In 2023, $44 million net release of impairment charges were driven by exposure reductions and shortening tenors of balances to the Pakistan Government. This was partly offset by a $8 million charge due to Kenya Sovereign downgrade. Central and other items stage 3 impairment charges decreased by $28 million to $10 million (31 December 2022: $38 million) as Sri Lanka and Ghana exposures were downgraded to Stage 3 in 2022. Further details can be found in the 'Credit impairment charge' section. Page 4 Vulnerable and Cyclical Sectors Total net on-balance sheet exposure to vulnerable and cyclical sectors decreased by $3 billion to $29 billion (31 December 2022: $32 billion) largely due to the exit of the Aviation business and lower drawn balances particularly in the CRE sector, where on-balance sheet exposure decreased by $1.8 billion to $14.5 billion (31 December 2022: $16.3 billion). Stage 2 vulnerable and cyclical sector loans decreased by $2.3 billion to $3.3 billion (31 December 2022: $5.6 billion), primarily driven by a $1.4 billion exposure reduction in the CRE sector and transfers to Stage 3. Stage 3 vulnerable and cyclical sector loans decreased by $0.5 billion to $3.6 billion (31 December 2022: $4 billion), mainly due to the Oil and Gas, and Commodity sectors, which was partly offset by new inflows into the CRE sector. The Group provides loans to CRE counterparties of which $9.6 billion is to counterparties in the CCIB segment where the source of repayment is substantially derived from rental or sale of real estate and is secured by real estate collateral. The remaining CRE loans comprise working capital loans to real estate corporates, loans with non-property collateral, unsecured loans and loans to real estate entities of diversified conglomerates. The average LTV ratio of the performing book CRE portfolio has increased to 52 per cent (31 December 2022: 49 per cent). The proportion of loans with an LTV greater than 80 per cent has increased to 3 per cent (31 December 2022: 1 per cent). Further details can be found in the 'Vulnerable, cyclical and high carbon sectors' section. China commercial real estate Total exposure to China CRE decreased by $0.8 billion to $2.6 billion (31 December 2022: $3.4 billion) mainly from exposure reductions. The proportion of credit impaired exposures increased to 58 per cent (31 December 2022: 33 per cent) as market conditions continued to deteriorate during the period, and provision coverage increased to 72 per cent (31 December 2022: 56 per cent) reflecting increased provision charges during the period. The proportion of the loan book rated as Higher Risk decreased by 8 per cent to 0.3 per cent (31 December 2022: 8.4 per cent) primarily due to downgrades in the period. The Group continues to hold a judgemental management overlay, which decreased by $32 million to $141 million (31 December 2022: $173 million), reflecting changes in the portfolio and downgrades to Stage 3. The Group is further indirectly exposed to China CRE through its associate investment in China Bohai Bank. Further details can be found in the 'China commercial real estate' section. Management adjustments Given the evolving nature of the risks in the China CRE sector, a management overlay of $141 million (31 December 2022: $173 million) has been taken by estimating the impact of further deterioration to exposures in this sector. Overlays of $5 million (31 December 2022: $16 million) have been applied in CPBB to capture macroeconomic environment challenges caused by sovereign defaults or heightened sovereign risk and an overlay of $17 million (31 December 2022: nil) was applied in Central and other items, due to a temporary market dislocation in the Africa and Middle East. The remaining COVID-19 overlay in CPBB of $21 million that was held at 31 December 2022 has been fully released in 2023. The stage 3 overlay in CCIB of $9 million that was held at 31 December 2022, following the Sri Lanka Sovereign default was also fully released in 2023. Further details can be found in the 'Judgemental management overlays' section. Model performance and judgemental post model adjustments are also disclosed in the 'Model performance post model adjustments' section. Page 5 Maximum exposure to Credit Risk (audited) The table below presents the Group's maximum exposure to credit risk for its on-balance sheet and off-balance sheet financial instruments as at 31 December 2023, before and after taking into account any collateral held or other credit risk mitigation. 2023 2022 Maximum exposure $million Credit risk management Net Exposure $million Maximum exposure $million Credit risk management Net exposure $million Collateral8 $million Master netting agreements $million Collateral8 $million Master netting agreements $million On-balance sheet Cash and balances at central banks 69,905 69,905 58,263 58,263 Loans and advances to banks1 44,977 1,738 43,239 39,519 978 38,541 of which - reverse repurchase agreements and other similar secured lending7 1,738 1,738 - 978 978 - Loans and advances to customers1 286,975 118,492 168,483 310,647 135,194 175,453 of which - reverse repurchase agreements and other similar secured lending7 13,996 13,996 - 24,498 24,498 - Investment securities - Debt securities and other eligible bills2 160,263 160,263 171,640 171,640 Fair value through profit or loss3, 7 144,276 81,847 - 62,429 102,575 64,491 - 38,084 Loans and advances to banks 2,265 2,265 976 976 Loans and advances to customers 7,212 7,212 6,546 6,546 Reverse repurchase agreements and other similar lending7 81,847 81,847 - 64,491 64,491 - Investment securities - Debt securities and other eligible bills2 52,952 52,952 30,562 30,562 Derivative financial instruments4, 7 50,434 8,440 39,293 2,701 63,717 9,206 50,133 4,378 Accrued income 2,673 2,673 2,706 2,706 Assets held for sale9 701 701 1,388 1,388 Other assets5 38,140 38,140 39,295 39,295 Total balance sheet 798,344 210,517 39,293 548,534 789,750 209,869 50,133 529,748 Off-balance sheet6 Undrawn Commitments 182,390 2,940 179,450 168,668 2,951 165,717 Financial Guarantees and other equivalents 74,414 2,590 71,824 60,410 2,592 57,818 Total off-balance sheet 256,804 5,530 - 251,274 229,078 5,543 - 223,535 Total 1,055,148 216,047 39,293 799,808 1,018,828 215,412 50,133 753,283 1. An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section 2. Excludes equity and other investments of $992 million (31 December 2022: $808 million). Further details are set out in Note 13 financial instruments 3. Excludes equity and other investments of $2,940 million (31 December 2022: $3,230 million). Further details are set out in Note 13 financial instruments 4 The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions 5. Other assets include Hong Kong certificates of indebtedness, cash collateral, and acceptances, in addition to unsettled trades and other financial assets 6. Excludes ECL allowances which are reported under Provisions for liabilities and charges 7. Collateral capped at maximum exposure (over-collateralised) 8. Adjusted for over-collateralisation, which has been determined with reference to the drawn and undrawn component as this best reflects the effect on the amount arising from expected credit losses 9. The amount is after ECL. Further details are set out in Note 21 Assets held for sale and associated liabilities Page 6 Analysis of financial instruments by stage (audited) The table below presents the gross and credit impairment balances by stage for the Group's amortised cost and FVOCI financial instruments as at 31 December 2023. 2023 Stage 1 Stage 2 Stage 3 Total Gross balance1 $million Total credit impair-ment $million Net carrying value $million Gross balance1 $million Total credit impair-ment $million Net carrying value $million Gross balance1 $million Total credit impair-ment $million Net carrying value $million Gross balance1 $million Total credit impair-ment $million Net carrying value $million Cash and balances at central banks 69,313 - 69,313 207 (7) 200 404 (12) 392 69,924 (19) 69,905 Loans and advances to banks (amortised cost) 44,384 (8) 44,376 540 (10) 530 77 (6) 71 45,001 (24) 44,977 Loans and advances to customers (amortised cost) 273,692 (430) 273,262 11,225 (420) 10,805 7,228 (4,320) 2,908 292,145 (5,170) 286,975 Debt securities and other eligible bills5 158,314 (26) 1,860 (34) 164 (61) 160,338 (121) Amortised cost 56,787 (16) 56,771 103 (2) 101 120 (57) 63 57,010 (75) 56,935 FVOCI2 101,527 (10) 1,757 (32) 44 (4) 103,328 (46) - Accrued income (amortised cost)4 2,673 - 2,673 - - - - - - 2,673 - 2,673 Assets held for sale4 661 (33) 628 76 (4) 72 1 - 1 738 (37) 701 Other assets 38,139 - 38,139 - - - 4 (3) 1 38,143 (3) 38,140 Undrawn commitments3 176,654 (52) 5,733 (39) 3 - 182,390 (91) Financial guarantees, trade credits and irrevocable letter of credits3 70,832 (10) 2,910 (14) 672 (112) 74,414 (136) Total 834,662 (559) 22,551 (528) 8,553 (4,514) 865,766 (5,601) 1 Gross carrying amount for off-balance sheet refers to notional values 2 These instruments are held at fair value on the balance sheet. The ECL provision in respect of debt securities measured at FVOCI is held within the OCI reserve 3 These are off-balance sheet instruments. Only the ECL is recorded on-balance sheet as a financial liability and therefore there is no "net carrying amount". ECL allowances on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component 4 Stage 1 ECL is not material 5 Stage 3 gross includes $80 million (31 December 2022: $28 million) originated credit-impaired debt securities with impairment of $14 million (31 December 2022: $13 million) Page 7 2022 Stage 1 Stage 2 Stage 3 Total Gross balance1 $million Total credit impair-ment $million Net carrying value $million Gross balance1 $million Total credit impair-ment $million Net carrying value $million Gross balance1 $million Total credit impair-ment $million Net carrying value $million Gross balance1 $million Total credit impair-ment $million Net carrying value $million Cash and balances at central banks 57,643 - 57,643 333 (8) 325 295 - 295 58,271 (8) 58,263 Loans and advances to banks (amortised cost) 39,149 (9) 39,140 337 (3) 334 59 (14) 45 39,545 (26) 39,519 Loans and advances to customers (amortised cost) 295,219 (559) 294,660 13,043 (444) 12,599 7,845 (4,457) 3,388 316,107 (5,460) 310,647 Debt securities and other eligible bills5 166,103 (25) 5,455 (90) 144 (106) 171,702 (221) Amortised cost 59,427 (9) 59,418 271 (2) 269 78 (51) 27 59,776 (62) 59,714 FVOCI2 106,676 (16) 5,184 (88) 66 (55) 111,926 (159) Accrued income (amortised cost)4 2,706 - 2,706 - - - - - - 2,706 - 2,706 Assets held for sale4 1,083 (6) 1,077 262 (4) 258 120 (67) 53 1,465 (77) 1,388 Other assets 39,294 - 39,294 - - - 4 (3) 1 39,298 (3) 39,295 Undrawn commitments3 162,958 (41) 5,582 (53) 128 - 168,668 (94) Financial guarantees, trade credits and irrevocable letter of credits3 56,683 (11) 3,062 (28) 665 (147) 60,410 (186) Total 820,838 (651) 28,074 (630) 9,260 (4,794) 858,172 (6,075) 1 Gross carrying amount for off-balance sheet refers to notional values 2 These instruments are held at fair value on the balance sheet. The ECL provision in respect of debt securities measured at FVOCI is held within the OCI reserve 3 These are off-balance sheet instruments. Only the ECL is recorded on-balance sheet as a financial liability and therefore there is no "net carrying amount". ECL allowances on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component 4 Stage 1 ECL is not material 5 Stage 3 gross includes $28 million originated credit-impaired debt securities with impairment of $13 million Page 8 Credit quality analysis (audited) Credit quality by client segment For CCIB, exposures are analysed by credit grade (CG), which plays a central role in the quality assessment and monitoring of risk. All loans are assigned a CG, which is reviewed periodically and amended in light of changes in the borrower's circumstances or behaviour. CGs 1 to 12 are assigned to stage 1 and stage 2 (performing) clients or accounts, while CGs 13 and 14 are assigned to stage 3 (credit-impaired) clients. Consumer and Business Banking portfolios are analysed by days past due and Private Banking by the type of collateral held. Mapping of credit quality The Group uses the following internal risk mapping to determine the credit quality for loans. Credit quality description Corporate, Commercial & Institutional Banking Private Banking1 Consumer & Business Banking5 Internal grade mapping S&P external ratings equivalent Regulatory PD range (%) Internal ratings Internal grade mapping Strong 1A to 5B AAA/AA+ to BBB-/BB+�� 0 to 0.425 Class I and Class IV Current loans (no past dues nor impaired) Satisfactory 6A to 11C BB+/BB to B-/CCC+�� 0.426 to 15.75 Class II and Class III Loans past due till 29 days Higher risk Grade 12 CCC+ to C�� 15.751 to 99.999 Stressed Assets Group (SAG) managed Past due loans 30 days and over till 90 days 1 For Private Banking, classes of risk represent the type of collateral held. Class I represents facilities with liquid collateral, such as cash and marketable securities. Class II represents unsecured/partially secured facilities and those with illiquid collateral, such as equity in private enterprises. Class III represents facilities with residential or commercial real estate collateral. Class IV covers margin trading facilities 2 Banks' rating: AAA/AA+ to BB+. Sovereigns' rating: AAA to BB+ 3 Banks' rating: BB to "CCC+ to C". Sovereigns' rating: BB+/BB to B-/CCC+ 4 Banks' rating: CCC+ to C. Sovereigns' rating: CCC+ to "CCC+ to C" 5 Medium enterprise clients within Business Banking are managed using the same internal credit grades as CCIB The table below sets out the gross loans and advances held at amortised cost, expected credit loss provisions and expected credit loss coverage by business segment and stage. Expected credit loss coverage represents the expected credit loss reported for each segment and stage as a proportion of the gross loan balance for each segment and stage. Page 9 Loans and advances by client segment (audited) Amortised cost 2023 Banks $million Customers Undrawn commitments $million Financial Guarantees $million Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Central & other items $million Customer Total $million Stage 1 44,384 120,886 123,486 1,015 28,305 273,692 176,654 70,832 - Strong 35,284 84,248 118,193 1,000 27,967 231,408 162,643 47,885 - Satisfactory 9,100 36,638 5,293 15 338 42,284 14,011 22,947 Stage 2 540 7,902 2,304 54 965 11,225 5,733 2,910 - Strong 55 1,145 1,761 34 - 2,940 1,090 830 - Satisfactory 212 5,840 206 7 - 6,053 4,169 1,823 - Higher risk 273 917 337 13 965 2,232 474 257 Of which (stage 2): - Less than 30 days past due - 78 206 7 - 291 - - - More than 30 days past due - 10 337 13 - 360 - - Stage 3, credit-impaired financial assets 77 5,508 1,484 12 224 7,228 3 672 Gross balance�� 45,001 134,296 127,274 1,081 29,494 292,145 182,390 74,414 Stage 1 (8) (101) (314) (15) - (430) (52) (10) - Strong (3) (34) (234) (14) - (282) (31) (2) - Satisfactory (5) (67) (80) (1) - (148) (21) (8) Stage 2 (10) (257) (141) (21) (1) (420) (39) (14) - Strong (1) (18) (65) (14) - (97) (5) - - Satisfactory (2) (179) (22) (3) - (204) (23) (7) - Higher risk (7) (60) (54) (4) (1) (119) (11) (7) Of which (stage 2): - Less than 30 days past due - (2) (22) (3) - (27) - - - More than 30 days past due - (1) (54) (4) - (59) - - Stage 3, credit-impaired financial assets (6) (3,533) (760) (12) (15) (4,320) - (112) Total credit impairment (24) (3,891) (1,215) (48) (16) (5,170) (91) (136) Net carrying value 44,977 130,405 126,059 1,033 29,478 286,975 Stage 1 0.0% 0.1% 0.3% 1.5% 0.0% 0.2% 0.0% 0.0% - Strong 0.0% 0.0% 0.2% 1.4% 0.0% 0.1% 0.0% 0.0% - Satisfactory 0.1% 0.2% 1.5% 6.7% 0.0% 0.4% 0.1% 0.0% Stage 2 1.9% 3.3% 6.1% 38.9% 0.1% 3.7% 0.7% 0.5% - Strong 1.8% 1.6% 3.7% 41.2% 0.0% 3.3% 0.5% 0.0% - Satisfactory 0.9% 3.1% 10.7% 42.9% 0.0% 3.4% 0.6% 0.4% - Higher risk 2.6% 6.5% 16.0% 30.8% 0.1% 5.3% 2.3% 2.7% Of which (stage 2): - Less than 30 days past due 0.0% 2.6% 10.7% 42.9% 0.0% 9.3% 0.0% 0.0% - More than 30 days past due 0.0% 10.0% 16.0% 30.8% 0.0% 16.4% 0.0% 0.0% Stage 3, credit-impaired financial assets (S3) 7.8% 64.1% 51.2% 100.0% 6.7% 59.8% 0.0% 16.7% Cover ratio 0.1% 2.9% 1.0% 4.4% 0.1% 1.8% 0.0% 0.2% Fair value through profit or loss Performing 32,813 58,465 13 - - 58,478 - - - Strong 28,402 38,014 13 - - 38,027 - - - Satisfactory 4,411 20,388 - - - 20,388 - - - Higher risk - 63 - - - 63 - - Defaulted (CG13-14) - 33 - - - 33 - - Gross balance (FVTPL)2 32,813 58,498 13 - - 58,511 - - Net carrying value (incl FVTPL) 77,790 188,903 126,072 1,033 29,478 345,486 - - 1. Loans and advances includes reverse repurchase agreements and other similar secured lending of $13,996 million under Customers and of $1,738 million under Banks, held at amortised cost 2. Loans and advances includes reverse repurchase agreements and other similar secured lending of $51,299 million under Customers and of $30,548 million under Banks, held at fair value through profit or loss Page 10 Amortised cost 2022 Banks $million Customers Undrawn commitments $million Financial Guarantees $million Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Central & other items $million Customer Total $million Stage 1 39,149 126,261 129,134 691 39,133 295,219 162,958 56,683 - Strong 27,941 89,567 124,734 685 39,133 254,119 148,303 39,612 - Satisfactory 11,208 36,694 4,400 6 - 41,100 14,655 17,071 Stage 2 337 11,355 1,670 18 - 13,043 5,582 3,062 - Strong 148 2,068 1,215 10 - 3,293 1,449 522 - Satisfactory 119 7,783 146 4 - 7,933 3,454 2,134 - Higher risk 70 1,504 309 4 - 1,817 679 406 Of which (stage 2): - Less than 30 days past due 5 109 148 4 - 261 - - - More than 30 days past due 6 23 310 4 - 337 - - Stage 3, credit-impaired financial assets 59 6,143 1,453 1 248 7,845 128 665 Gross balance1 39,545 143,759 132,257 710 39,381 316,107 168,668 60,410 Stage 1 (9) (143) (406) (10) - (559) (41) (11) - Strong (3) (43) (332) (10) - (385) (28) (3) - Satisfactory (6) (100) (74) - - (174) (13) (8) Stage 2 (3) (323) (120) (1) - (444) (53) (28) - Strong - (30) (62) (1) - (93) (6) - - Satisfactory (2) (159) (17) - - (176) (42) (15) - Higher risk (1) (134) (41) - - (175) (5) (13) Of which (stage 2): - Less than 30 days past due - (2) (17) - - (19) - - - More than 30 days past due - (1) (41) - - (42) - - Stage 3, credit-impaired financial assets (14) (3,662) (776) (1) (18) (4,457) - (147) Total credit impairment (26) (4,128) (1,302) (12) (18) (5,460) (94) (186) Net carrying value 39,519 139,631 130,955 698 39,363 310,647 Stage 1 0.0% 0.1% 0.3% 1.4% 0.0% 0.2% 0.0% 0.0% - Strong 0.0% 0.0% 0.3% 1.5% 0.0% 0.2% 0.0% 0.0% - Satisfactory 0.1% 0.3% 1.7% 0.0% 0.0% 0.4% 0.1% 0.0% Stage 2 0.9% 2.8% 7.2% 5.6% 0.0% 3.4% 0.9% 0.9% - Strong 0.0% 1.5% 5.1% 10.0% 0.0% 2.8% 0.4% 0.0% - Satisfactory 1.7% 2.0% 11.6% 0.0% 0.0% 2.2% 1.2% 0.7% - Higher risk 1.4% 8.9% 13.3% 0.0% 0.0% 9.6% 0.7% 3.2% Of which (stage 2): - Less than 30 days past due 0.0% 1.8% 11.5% 0.0% 0.0% 7.3% 0.0% 0.0% - More than 30 days past due 0.0% 4.3% 13.2% 0.0% 0.0% 12.5% 0.0% 0.0% Stage 3, credit-impaired financial assets (S3) 23.7% 59.6% 53.4% 100.0% 7.3% 56.8% 0.0% 22.1% Cover ratio 0.1% 2.9% 1.0% 1.7% 0.0% 1.7% 0.1% 0.3% Fair value through profit or loss Performing 24,930 44,461 28 - 2,557 47,046 - - - Strong 21,451 36,454 27 - 2,409 38,890 - - - Satisfactory 3,479 8,007 1 - 148 8,156 - - - Higher risk - - - - - - - - Defaulted (CG13-14) - 37 - - - 37 - - Gross balance (FVTPL)2 24,930 44,498 28 - 2,557 47,083 - - Net carrying value (incl FVTPL) 64,449 184,129 130,983 698 41,920 357,730 - - 1. Loans and advances includes reverse repurchase agreements and other similar secured lending of $24,498 million under Customers and of $978 million under Banks, held at amortised cost 2. Loans and advances includes reverse repurchase agreements and other similar secured lending of $40,537 million under Customers and of $23,954 million under Banks, held at fair value through profit or loss Page 11 Loans and advances by client segment credit quality analysis Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate, Commercial & Institutional Banking 2023 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 84,248 1,145 - 85,893 (34) (18) - (52) 1A-2B 0 - 0.045 A+ and above 10,891 81 - 10,972 (1) - - (1) 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 31,974 558 - 32,532 (3) - - (3) 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 41,383 506 - 41,889 (30) (18) - (48) Satisfactory 36,638 5,840 - 42,478 (67) (179) - (246) 6A-7B 0.426 - 1.350 BB+/BB to BB- 24,296 1,873 - 26,169 (38) (77) - (115) 8A-9B 1.351 - 4.000 BB-/B+ to B 8,196 2,273 - 10,469 (13) (90) - (103) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 4,146 1,694 - 5,840 (16) (12) - (28) Higher risk - 917 - 917 - (60) - (60) 12 15.751 - 99.999 CCC+/C - 917 - 917 - (60) - (60) Defaulted - - 5,508 5,508 - - (3,533) (3,533) 13-14 100 Defaulted - - 5,508 5,508 - - (3,533) (3,533) Total 120,886 7,902 5,508 134,296 (101) (257) (3,533) (3,891) Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate, Commercial & Institutional Banking 2022 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 89,567 2,068 - 91,635 (43) (30) - (73) 1A-2B 0 - 0.045 A+ and above 8,247 117 - 8,364 (4) - - (4) 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 36,379 321 - 36,700 (5) - - (5) 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 44,941 1,630 - 46,571 (34) (30) - (64) Satisfactory 36,694 7,783 - 44,477 (100) (159) - (259) 6A-7B 0.426 - 1.350 BB+/BB to BB- 23,196 2,684 - 25,880 (67) (94) - (161) 8A-9B 1.351 - 4.000 BB-/B+ to B 9,979 3,116 - 13,095 (20) (35) - (55) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 3,519 1,983 - 5,502 (13) (30) - (43) Higher risk - 1,504 - 1,504 - (134) - (134) 12 15.751 - 99.999 CCC+/C - 1,504 - 1,504 - (134) - (134) Defaulted - - 6,143 6,143 - - (3,662) (3,662) 13-14 100 Defaulted - - 6,143 6,143 - - (3,662) (3,662) Total 126,261 11,355 6,143 143,759 (143) (323) (3,662) (4,128) Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate lending�� - Asia 2023 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 36,959 802 - 37,761 (12) (15) - (27) 1A-2B 0 - 0.045 A+ and above 3,550 24 - 3,574 - - - - 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 12,634 400 - 13,034 (1) - - (1) 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 20,775 378 - 21,153 (11) (15) - (26) Satisfactory 22,581 2,534 - 25,115 (35) (137) - (172) 6A-7B 0.426 - 1.350 BB+/BB to BB- 14,740 739 - 15,479 (28) (68) - (96) 8A-9B 1.351 - 4.000 BB-/B+ to B 5,243 1,134 - 6,377 (5) (66) - (71) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 2,598 661 - 3,259 (2) (3) - (5) Higher risk - 231 - 231 - (19) - (19) 12 15.751 - 99.999 CCC+/C - 231 - 231 - (19) - (19) Defaulted - - 2,870 2,870 - - (2,014) (2,014) 13-14 100 Defaulted - - 2,870 2,870 - - (2,014) (2,014) Total 59,540 3,567 2,870 65,977 (47) (171) (2,014) (2,232) 1 Corporate loans and advances to customers excludes loans to "Financing, insurance and non-banking" and "Government" counterparties Page 12 Corporate lending1 - Asia 2022 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 40,402 1,361 - 41,763 (28) (21) - (49) 1A-2B 0 - 0.045 A+ and above 3,857 52 - 3,909 (3) - - (3) 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 14,694 250 - 14,944 (2) (1) - (3) 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 21,851 1,059 - 22,910 (23) (20) - (43) Satisfactory 22,064 3,859 - 25,923 (55) (99) - (154) 6A-7B 0.426 - 1.350 BB+/BB to BB- 14,512 1,285 - 15,797 (47) (81) - (128) 8A-9B 1.351 - 4.000 BB-/B+ to B 5,091 1,451 - 6,542 (7) (7) - (14) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 2,461 1,123 - 3,584 (1) (11) - (12) Higher risk - 463 - 463 - (106) - (106) 12 15.751 - 99.999 CCC+/C - 463 - 463 - (106) - (106) Defaulted - - 3,063 3,063 - - (1,748) (1,748) 13-14 100 Defaulted - - 3,063 3,063 - - (1,748) (1,748) Total 62,466 5,683 3,063 71,212 (83) (226) (1,748) (2,057) 1 Corporate loans and advances to customers excludes loans to "Financing, insurance and non-banking" and "Government" counterparties Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate lending1 - Africa & Middle East 2023 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 7,756 43 - 7,799 (1) (2) - (3) 1A-2B 0 - 0.045 A+ and above 358 - - 358 - - - - 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 1,952 - - 1,952 - - - - 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 5,446 43 - 5,489 (1) (2) - (3) Satisfactory 2,801 492 - 3,293 (18) (13) - (31) 6A-7B 0.426 - 1.350 BB+/BB to BB- 1,512 82 - 1,594 (2) (3) - (5) 8A-9B 1.351 - 4.000 BB-/B+ to B 587 175 - 762 (4) (7) - (11) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 702 235 - 937 (12) (3) - (15) Higher risk - 515 - 515 - (37) - (37) 12 15.751 - 99.999 CCC+/C - 515 - 515 - (37) - (37) Defaulted - - 1,435 1,435 - - (1,079) (1,079) 13-14 100 Defaulted - - 1,435 1,435 - - (1,079) (1,079) Total 10,557 1,050 1,435 13,042 (19) (52) (1,079) (1,150) 1 Corporate loans and advances to customers excludes loans to "Financing, insurance and non-banking" and "Government" counterparties Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate lending1 - Africa & Middle East 2022 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 6,268 311 - 6,579 - - - - 1A-2B 0 - 0.045 A+ and above 338 6 - 344 - - - - 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 2,049 23 - 2,072 - - - - 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 3,881 282 - 4,163 - - - - Satisfactory 4,389 642 - 5,031 (32) (41) - (73) 6A-7B 0.426 - 1.350 BB+/BB to BB- 1,454 218 - 1,672 (11) (3) - (14) 8A-9B 1.351 - 4.000 BB-/B+ to B 2,361 320 - 2,681 (11) (24) - (35) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 574 104 - 678 (10) (14) - (24) Higher risk - 653 - 653 - (26) - (26) 12 15.751 - 99.999 CCC+/C - 653 - 653 - (26) - (26) Defaulted - - 1,735 1,735 - - (1,344) (1,344) 13-14 100 Defaulted - - 1,735 1,735 - - (1,344) (1,344) Total 10,657 1,606 1,735 13,998 (32) (67) (1,344) (1,443) 1 Corporate loans and advances to customers excludes loans to "Financing, insurance and non-banking" and "Government" counterparties Page 13 Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate lending1 - Europe &Americas 2023 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 9,283 198 - 9,481 (11) - - (11) 1A-2B 0 - 0.045 A+ and above 528 - - 528 - - - - 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 4,413 124 - 4,537 (1) - - (1) 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 4,342 74 - 4,416 (10) - - (10) Satisfactory 4,778 1,621 - 6,399 (5) (22) - (27) 6A-7B 0.426 - 1.350 BB+/BB to BB- 3,912 768 - 4,680 (4) (2) - (6) 8A-9B 1.351 - 4.000 BB-/B+ to B 596 821 - 1,417 (1) (15) - (16) 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 270 32 - 302 - (5) - (5) Higher risk - 77 - 77 - (7) - (7) 12 15.751 - 99.999 CCC+/C - 77 - 77 - (7) - (7) Defaulted - - 980 980 - - (345) (345) 13-14 100 Defaulted - - 980 980 - - (345) (345) Total 14,061 1,896 980 16,937 (16) (29) (345) (390) 1 Corporate loans and advances to customers excludes loans to "Financing, insurance and non-banking" and "Government" counterparties Credit grade Regulatory 1 year PD range (%) S&P external ratings equivalent Corporate lending1 - Europe & Americas 2022 Gross Credit impairment Stage 1 $million Stage 2 $million Stage 3 $million Total $million Stage 1 $million Stage 2 $million Stage 3 $million Total $million Strong 10,033 225 - 10,258 (13) - - (13) 1A-2B 0 - 0.045 A+ and above 575 - - 575 - - - - 3A-4A 0.046 - 0.110 A/A- to BBB+/BBB 4,065 8 - 4,073 (1) - - (1) 4B-5B 0.111 - 0.425 BBB to BBB-/BB+ 5,393 217 - 5,610 (12) - - (12) Satisfactory 4,498 2,077 - 6,575 (4) (25) - (29) 6A-7B 0.426 - 1.350 BB+/BB to BB- 3,867 1,376 - 5,243 (4) (25) - (29) 8A-9B 1.351 - 4.000 BB-/B+ to B 537 636 - 1,173 - - - - 10A-11C 4.001 - 15.75 B/B- to B-/CCC+ 94 65 - 159 - - - - Higher risk - 387 - 387 - (1) - (1) 12 15.751 - 99.999 CCC+/C - 387 - 387 - (1) - (1) Defaulted - - 1,230 1,230 - - (398) (398) 13-14 100 Defaulted - - 1,230 1,230 - - (398) (398) Total 14,531 2,689 1,230 18,450 (17) (26) (398) (441) 1 Corporate loans and advances to customers excludes loans to "Financing, insurance and non-banking" and "Government" counterparties Page 14 Consumer, Private & Business Banking 2023 Asia Africa & Middle East Europe & Americas Total $million Mort-gages $million Credit Cards $million Others $million Total $million Mort-gages $million Credit Cards $million Others $million Total $million Mort-gages $million Credit Cards $million Others $million Total $million Stage 1 Gross Strong 77,270 6,234 30,027 113,531 974 263 2,471 3,708 335 - 619 954 118,193 Satisfactory 659 113 2,418 3,190 158 11 121 290 1,812 - 1 1,813 5,293 Total 77,929 6,347 32,445 116,721 1,132 274 2,592 3,998 2,147 - 620 2,767 123,486 ECL Strong (5) (25) (181) (211) (2) (7) (13) (22) - - (1) (1) (234) Satisfactory - (57) (19) (76) - - (2) (2) (2) - - (2) (80) Total (5) (82) (200) (287) (2) (7) (15) (24) (2) - (1) (3) (314) Coverage % 0% 1% 1% 0% 0% 3% 1% 1% 0% 0% 0% 0% 0% Stage 2 Gross Strong 1,014 124 583 1,721 17 8 15 40 - - - - 1,761 Satisfactory 122 14 29 165 4 1 9 14 27 - - 27 206 Higher risk 161 39 118 318 5 3 11 19 - - - - 337 Total 1,297 177 730 2,204 26 12 35 73 27 - - 27 2,304 ECL Strong (1) (12) (43) (56) (1) (1) (7) (9) - - - - (65) Satisfactory - (14) (7) (21) - - (1) (1) - - - - (22) Higher risk (1) (17) (34) (52) - (1) (1) (2) - - - - (54) Total (2) (43) (84) (129) (1) (2) (9) (12) - - - - (141) Coverage % 0% 24% 12% 6% 4% 17% 26% 16% 0% 0% 0% 0% 6% Stage 3 Gross credit impaired 382 53 841 1,276 53 3 59 115 85 - 8 93 1,484 ECL (84) (36) (566) (686) (25) (2) (33) (60) (14) - - (14) (760) Coverage % 22% 68% 67% 54% 47% 67% 56% 52% 16% 0% 0% 15% 51% Total Gross Strong 78,284 6,358 30,610 115,252 991 271 2,486 3,748 335 - 619 954 119,954 Satisfactory 781 127 2,447 3,355 162 12 130 304 1,839 - 1 1,840 5,499 Higher risk 161 39 118 318 5 3 11 19 - - - - 337 Credit-Impaired 382 53 841 1,276 53 3 59 115 85 - 8 93 1,484 Total 79,608 6,577 34,016 120,201 1,211 289 2,686 4,186 2,259 - 628 2,887 127,274 ECL Strong (6) (37) (224) (267) (3) (8) (20) (31) - - (1) (1) (299) Satisfactory - (71) (26) (97) - - (3) (3) (2) - - (2) (102) Higher risk (1) (17) (34) (52) - (1) (1) (2) - - - - (54) Credit-Impaired (84) (36) (566) (686) (25) (2) (33) (60) (14) - - (14) (760) Total (91) (161) (850) (1,102) (28) (11) (57) (96) (16) - (1) (17) (1,215) Coverage % 0% 2% 2% 1% 2% 4% 2% 2% 1% 0% 0% 1% 1% Page 15 Consumer, Private & Business Banking 2022 Asia Africa & Middle East Europe & Americas Mort-gages $million Credit cards $million Others $million Total $million Mort-gages $million Credit cards $million Others $million Total $million Mort-gages $million Credit cards $million Others $million Total $million Total $million Stage 1 Gross Strong 81,738 5,781 32,297 119,816 1,004 281 2,590 3,875 397 - 646 1,043 124,734 Satisfactory 1,155 145 1,378 2,678 189 9 71 269 1,372 - 81 1,453 4,400 Total 82,893 5,926 33,675 122,494 1,193 290 2,661 4,144 1,769 - 727 2,496 129,134 ECL Strong - (49) (233) (282) (3) (6) (37) (46) (2) - (2) (4) (332) Satisfactory (6) (37) (27) (70) (1) - (1) (2) (2) - - (2) (74) Total (6) (86) (260) (352) (4) (6) (38) (48) (4) - (2) (6) (406) Coverage % 0% 1% 1% 0% 0% 2% 1% 1% 0% 0% 0% 0% 0% Stage 2 Gross Strong 576 88 388 1,052 112 2 46 160 1 - 2 3 1,215 Satisfactory 75 10 14 99 43 1 3 47 - - - - 146 Higher risk 150 34 63 247 12 3 13 28 34 - - 34 309 Total 801 132 465 1,398 167 6 62 235 35 - 2 37 1,670 ECL Strong (2) (26) (27) (55) (3) (1) (3) (7) - - - - (62) Satisfactory (1) (9) (7) (17) - - - - - - - - (17) Higher risk (2) (6) (28) (36) - (1) (4) (5) - - - - (41) Total (5) (41) (62) (108) (3) (2) (7) (12) - - - - (120) Coverage % 1% 31% 13% 8% 2% 33% 11% 5% 0% 0% 0% 0% 7% Stage 3 Gross credit impaired 368 48 783 1,199 111 10 56 177 77 - - 77 1,453 ECL (97) (35) (524) (656) (76) (7) (30) (113) (7) - - (7) (776) Coverage % 26% 73% 67% 55% 68% 70% 54% 64% 9% 0% 0% 9% 53% Total Gross Strong 82,314 5,869 32,685 120,868 1,116 283 2,636 4,035 398 - 648 1,046 125,949 Satisfactory 1,230 155 1,392 2,777 232 10 74 316 1,372 - 81 1,453 4,546 Higher risk 150 34 63 247 12 3 13 28 34 - - 34 309 Credit-Impaired 368 48 783 1,199 111 10 56 177 77 - - 77 1,453 Total 84,062 6,106 34,923 125,091 1,471 306 2,779 4,556 1,881 - 729 2,610 132,257 ECL Strong (2) (75) (260) (337) (6) (7) (40) (53) (2) - (2) (4) (394) Satisfactory (7) (46) (34) (87) (1) - (1) (2) (2) - - (2) (91) Higher risk (2) (6) (28) (36) - (1) (4) (5) - - - - (41) Credit-Impaired (97) (35) (524) (656) (76) (7) (30) (113) (7) - - (7) (776) Total (108) (162) (846) (1,116) (83) (15) (75) (173) (11) - (2) (13) (1,302) Coverage % 0% 3% 2% 1% 6% 5% 3% 4% 1% 0% 0% 0% 1% Page 16 Credit quality by geographic region The following table sets out the credit quality for gross loans and advances to customers and banks, held at amortised cost, by geographic region and stage. Loans and advances to customers Amortised cost 2023 2022 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Asia $million Africa & Middle East $million Europe & Americas $million Total $million Gross (stage 1) 229,289 17,536 26,867 273,692 248,625 17,553 29,041 295,219 Provision (stage 1) (363) (39) (28) (430) (454) (73) (32) (559) Gross (stage 2) 6,660 3,276 1,289 11,225 8,302 3,122 1,619 13,043 Provision (stage 2) (321) (70) (29) (420) (337) (104) (3) (444) Gross (stage 3) 4,604 2,273 351 7,228 4,562 2,725 558 7,845 Provision (stage 3) (2,734) (1,387) (199) (4,320) (2,483) (1,765) (209) (4,457) Net loans1 237,135 21,589 28,251 286,975 258,215 21,458 30,974 310,647 1 Includes reverse repurchase agreements and other similar secured lending Loans and advances to banks Amortised cost 2023 2022 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Asia $million Africa & Middle East $million Europe & Americas $million Total $million Gross (stage 1) 35,338 2,803 6,243 44,384 21,806 3,818 13,525 39,149 Provision (stage 1) (7) - (1) (8) (3) (4) (2) (9) Gross (stage 2) 17 311 212 540 212 116 9 337 Provision (stage 2) (2) (8) - (10) (2) (1) - (3) Gross (stage 3) 73 - 4 77 59 - - 59 Provision (stage 3) (2) - (4) (6) (14) - - (14) Net loans1 35,417 3,106 6,454 44,977 22,058 3,929 13,532 39,519 1 Includes reverse repurchase agreements and other similar secured lending Movement in gross exposures and credit impairment for loans and advances, debt securities, undrawn commitments and financial guarantees (audited) The tables overleaf set out the movement in gross exposures and credit impairment by stage in respect of amortised cost loans to banks and customers, undrawn commitments, financial guarantees and debt securities classified at amortised cost and FVOCI. The tables are presented for the Group, debt securities and other eligible bills. Methodology The movement lines within the tables are an aggregation of monthly movements over the year and will therefore reflect the accumulation of multiple trades during the year. The credit impairment charge in the income statement comprises the amounts within the boxes in the table below, less recoveries of amounts previously written off. Discount unwind is reported in net interest income and related to stage 3 financial instruments only. The approach for determining the key line items in the tables is set out below. �� Transfers - transfers between stages are deemed to occur at the beginning of a month based on prior month closing balances. �� Net remeasurement from stage changes - the remeasurement of credit impairment provisions arising from a change in stage is reported within the stage that the assets are transferred to. For example, assets transferred into stage 2 are remeasured from a 12-month to a lifetime expected credit loss, with the effect of remeasurement reported in stage 2. For stage 3, this represents the initial remeasurement from specific provisions recognised on individual assets transferred into stage 3 in the year. Page 17 �� Net changes in exposures - new business written less repayments in the year. Within stage 1, new business written will attract up to 12 months of expected credit loss charges. Repayments of non-amortising loans (primarily within CCIB) will have low amounts of expected credit loss provisions attributed to them, due to the release of provisions over the term to maturity. In stages 2 and 3, the net change in exposures reflect repayments although stage 2 may include new facilities where clients are on non-purely precautionary early alert, are CG 12, or when non-investment grade debt securities are acquired. �� Changes in risk parameters - for stages 1 and 2, this reflects changes in the probability of default (PD), loss given default (LGD) and exposure at default (EAD) of assets during the year, which includes the impact of releasing provisions over the term to maturity. It also includes the effect of changes in forecasts of macroeconomic variables during the year. In stage 3, this line represents additional specific provisions recognised on exposures held within stage 3. �� Interest due but not paid - change in contractual amount of interest due in stage 3 financial instruments but not paid, being the net of accruals, repayments and write-offs, together with the corresponding change in credit impairment. Changes to ECL models, which incorporate changes to model approaches and methodologies, are not reported as a separate line item as these have an impact over a number of lines and stages. Movements during the year Stage 1 gross exposures increased by $3.8 billion to $724 billion (31 December 2022: $720 billion). CCIB exposure increased by $21.8 billion to $337 billion (31 December 2022: $315 billion) due to off-balance sheet exposures, which was partly offset by a decrease in loans and advances to customers. CPBB decreased by $2.2 billion to $191 billion (31 December 2022: $193 billion) which was largely driven by the mortgage portfolio in Korea and Hong Kong. Stage 1 debt securities decreased by $7.8 billion to $158 billion (31 December 2022: $166 billion) due to liquidity management and maturities. Total stage 1 provisions decreased by $119 million to $526 million (31 December 2022: $645 million). CCIB provisions decreased by $43 million to $151 million (31 December 2022: $194 million), primarily due to new originations, which was partly offset by model updates. Debt securities provisions was stable at $26 million (31 December 2022: $25 million). CPBB decreased by $88 million to $325 million (31 December 2022: $413 million), mainly driven by the release of the judgemental non-linearity post model adjustment and overlay releases, both of which are reported in 'Changes in risk parameters'. Stage 2 gross exposures decreased by $5.2 billion to $22 billion (31 December 2022: $27 billion), primarily driven by a net reduction in exposures in CCIB, particularly in the CRE and Transport sectors. CPBB exposures increased by $0.7 billion to $2.5 billion (31 December 2022: $1.8 billion), of which $0.4 billion was from the Secured portfolio. Debt securities decreased by $3.6 billion to $1.9 billion (31 December 2022: $5.5 billion). Stage 2 provisions decreased by $101 million to $517 million (31 December 2022: $618 million). CCIB provisions decreased by $93 million to $318 million (31 December 2022: $411 million) from releases due to exposure reductions, transfers to stage 3 for China CRE exposures and model updates. This was partly offset by a further downgrade of Pakistan sovereign clients within stage 2. CPBB provisions increased by $22 million to $140 million (31 December 2022: $118 million) due to higher delinquencies. This was partly offset by the release of judgemental non-linearity post model adjustment and overlay releases which are reported within 'Changes in risk parameters' due to underlying factors not being valid any more. Debt Securities decreased by $56 million to $34 million (31 December 2022: $90 million) largely due to exposure reductions and shortening of tenors, particularly in Pakistan. The impact of model and methodology updates in 2023 reduced stage 1 and 2 provisions by $15 million, of which $10 million was in CCIB and Central and other items, while $5 million was in CPBB. Stage 3 gross loans for CCIB decreased by $0.7 billion to $6.3 billion (31 December 2022: $7 billion) as repayments and write-offs were partly offset by the downgrade of China CRE clients. CCIB provisions decreased by $171 million to $3.7 billion (31 December 2022: $3.8 billion) as charges from new downgrades were offset by releases due to repayments and write-offs. CPBB stage 3 loans was stable at $1.5 billion (31 December 2022: $1.5 billion) but provisions decreased by $17 million to $0.8 billion (31 December 2022: $0.8 billion). Debt security gross assets increased by $20 million to $164 million (31 December 2022: $144 million). Page 18 All segments (audited) Amortised cost and FVOCI Stage 1 Stage 2 Stage 35 Total Gross balance3 $million Total credit impair-ment $million Net $million Gross balance3 $million Total credit impair-ment $million Net $million Gross balance3 $million Total credit impair-ment $million Net $million Gross balance3 $million Total credit impair-ment $million Net $million As at 1 January 2022 684,759 (609) 684,150 34,550 (652) 33,898 9,061 (4,941) 4,120 728,370 (6,202) 722,168 Transfers to stage 1 24,666 (555) 24,111 (24,633) 555 (24,078) (33) - (33) - - - Transfers to stage 2 (46,960) 228 (46,732) 47,479 (246) 47,233 (519) 18 (501) - - - Transfers to stage 3 (176) 74 (102) (3,630) 253 (3,377) 3,806 (327) 3,479 - - - Net change in exposures 83,204 (137) 83,067 (24,324) 93 (24,231) (1,710) 338 (1,372) 57,170 294 57,464 Net remeasurement from stage changes - 45 45 - (126) (126) - (168) (168) - (249) (249) Changes in risk parameters - 106 106 - (387) (387) - (895) (895) - (1,176) (1,176) Write-offs - - - - - - (949) 949 - (949) 949 - Interest due but unpaid - - - - - - (157) 157 - (157) 157 - Discount unwind - - - - - - - 136 136 - 136 136 Exchange translation differences and other movements�� (25,381) 203 (25,178) (1,963) (108) (2,071) (658) 9 (649) (28,002) 104 (27,898) As at 31 December 2022�� 720,112 (645) 719,467 27,479 (618) 26,861 8,841 (4,724) 4,117 756,432 (5,987) 750,445 Income statement ECL (charge)/release 14 (420) (725) (1,131) Recoveries of amounts previously written off - - 293 293 Total credit impairment (charge)/release 14 (420) (432) (838) As at 1 January 2023 720,112 (645) 719,467 27,479 (618) 26,861 8,841 (4,724) 4,117 756,432 (5,987) 750,445 Transfers to stage 1 19,594 (661) 18,933 (19,583) 661 (18,922) (11) - (11) - - - Transfers to stage 2 (42,628) 174 (42,454) 42,793 (182) 42,611 (165) 8 (157) - - - Transfers to stage 3 (96) 6 (90) (2,329) 326 (2,003) 2,425 (332) 2,093 - - - Net change in exposures 23,717 (185) 23,532 (22,727) 22 (22,705) (1,708) 624 (1,084) (718) 461 (257) Net remeasurement from stage changes - 52 52 - (199) (199) - (163) (163) - (310) (310) Changes in risk parameters - 202 202 - (32) (32) - (1,100) (1,100) - (930) (930) Write-offs - - - - - - (1,027) 1,027 - (1,027) 1,027 - Interest due but unpaid - - - - - - (83) 83 - (83) 83 - Discount unwind - - - - - - - 180 180 - 180 180 Exchange translation differences and other movements�� 3,177 531 3,708 (3,365) (495) (3,860) (128) (102) (230) (316) (66) (382) As at 31 December 2023�� 723,876 (526) 723,350 22,268 (517) 21,751 8,144 (4,499) 3,645 754,288 (5,542) 748,746 Income statement ECL (charge)/release�� 69 (209) (639) (779) Recoveries of amounts previously written off - - 271 271 Total credit impairment (charge)/release4 69 (209) (368) (508) 1 Includes fair value adjustments and amortisation on debt securities 2 Excludes Cash and balances at central banks, Accrued income, Assets held for sale and Other assets gross balances of $111,478 million (31 December 2022: $101,740 million) and Total credit impairment of $59 million (31 December 2022: $88 million) 3 The gross balance includes the notional amount of off -balance sheet instruments 4 Reported basis 5 Stage 3 includes gross of $80 million (31 December 2022: $28 million) and ECL $14 million (31 December 2022: $13 million) originated credit-impaired debt securities 6 Does not include release relating to Other assets (31 December 2022: $2 million) Page 19 Of which - movement of debt securities, alternative tier one and other eligible bills (audited) Amortised cost and FVOCI Stage 1 Stage 2 Stage 32 Total Gross balance $million Total credit impair-ment $million Net $million Gross balance $million Total credit impair-ment $million Net $million Gross balance $million Total credit impair-ment $million Net $million Gross balance $million Total credit impair-ment $million Net3 $million As at 1 January 2022 157,352 (67) 157,285 5,315 (42) 5,273 113 (66) 47 162,780 (175) 162,605 Transfers to stage 1 2,296 (22) 2,274 (2,296) 22 (2,274) - - - - - - Transfers to stage 2 (3,942) 38 (3,904) 3,942 (38) 3,904 - - - - - - Transfers to stage 3 - - - (66) 42 (24) 66 (42) 24 - - - Net change in exposures 21,613 (44) 21,569 (752) 9 (743) - 1 1 20,861 (34) 20,827 Net remeasurement from stage changes - 10 10 - (2) (2) - (23) (23) - (15) (15) Changes in risk parameters - 38 38 - (98) (98) - (13) (13) - (73) (73) Write-offs - - - - - - (30) 30 - (30) 30 - Interest due but unpaid - - - - - - - - - - - - Exchange translation differences and other movements1 (11,216) 22 (11,194) (688) 17 (671) (5) 7 2 (11,909) 46 (11,863) As at 31 December 2022 166,103 (25) 166,078 5,455 (90) 5,365 144 (106) 38 171,702 (221) 171,481 Income statement ECL (charge)/release 4 (91) (35) (122) Recoveries of amounts previously written off - - - - Total credit impairment (charge)/release 4 (91) (35) (122) As at 1 January 2023 166,103 (25) 166,078 5,455 (90) 5,365 144 (106) 38 171,702 (221) 171,481 Transfers to stage 1 371 (65) 306 (371) 65 (306) - - - - - - Transfers to stage 2 (884) 14 (870) 884 (14) 870 - - - - - - Transfers to stage 3 - - - (16) - (16) 16 - 16 - - - Net change in exposures (11,583) (28) (11,611) (1,899) (44) (1,943) 7 - 7 (13,475) (72) (13,547) Net remeasurement from stage changes - 7 7 - (18) (18) - - - - (11) (11) Changes in risk parameters - 32 32 - 105 105 - (4) (4) - 133 133 Write-offs - - - - - - - - - - - - Interest due but unpaid - - - - - - - - - - - - Exchange translation differences and other movements1 4,307 39 4,346 (2,193) (38) (2,231) (3) 49 46 2,111 50 2,161 As at 31 December 2023 158,314 (26) 158,288 1,860 (34) 1,826 164 (61) 103 160,338 (121) 160,217 Income statement ECL (charge)/release 11 43 (4) 50 Recoveries of amounts previously written off - - - - Total credit impairment (charge)/release 11 43 (4) 50 1 Includes fair value adjustments and amortisation on debt securities 2 Stage 3 includes gross of $80 million (31 December 2022: $28 million) and ECL $14 million (31 December 2022: $13 million) originated credit-impaired debt securities 3 FVOCI instruments are not presented net of ECL. While the presentation is on a net basis for the table, the total net on-balance sheet amount to $160,263 million (31 December 2022: $171,640 million). Refer to the Analysis of financial instrument by stage table Page 20 Corporate, Commercial & Institutional Banking (audited) Amortised cost and FVOCI Stage 1 Stage 2 Stage 3 Total Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million As at 1 January 2022 313,132 (163) 312,969 25,437 (425) 25,012 7,372 (4,079) 3,293 345,941 (4,667) 341,274 Transfers to stage 1 17,565 (227) 17,338 (17,565) 227 (17,338) - - - - - - Transfers to stage 2 (37,505) 48 (37,457) 37,944 (66) 37,878 (439) 18 (421) - - - Transfers to stage 3 (42) - (42) (2,478) 134 (2,344) 2,520 (134) 2,386 - - - Net change in exposures 30,508 (44) 30,464 (21,915) 65 (21,850) (1,314) 340 (974) 7,279 361 7,640 Net remeasurement from stage changes - 2 2 - (42) (42) - (104) (104) - (144) (144) Changes in risk parameters - 21 21 - (154) (154) - (551) (551) - (684) (684) Write-offs - - - - - - (384) 384 - (384) 384 - Interest due but unpaid - - - - - - (130) 130 - (130) 130 - Discount unwind - - - - - - - 110 110 - 110 110 Exchange translation differences and other movements (8,221) 169 (8,052) (1,275) (150) (1,425) (631) 64 (567) (10,127) 83 (10,044) As at 31 December 2022 315,437 (194) 315,243 20,148 (411) 19,737 6,994 (3,822) 3,172 342,579 (4,427) 338,152 Income statement ECL (charge)/release2 (21) (131) (315) (467) Recoveries of amounts previously written off - - 49 49 Total credit impairment (charge)/release (21) (131) (266) (418) As at 1 January 2023 315,437 (194) 315,243 20,148 (411) 19,737 6,994 (3,822) 3,172 342,579 (4,427) 338,152 Transfers to stage 1 14,948 (347) 14,601 (14,948) 347 (14,601) - - - - - - Transfers to stage 2 (34,133) 80 (34,053) 34,175 (88) 34,087 (42) 8 (34) - - - Transfers to stage 3 (17) - (17) (1,270) 141 (1,129) 1,287 (141) 1,146 - - - Net change in exposures 41,314 (73) 41,241 (20,084) 89 (19,995) (1,335) 623 (712) 19,895 639 20,534 Net remeasurement from stage changes - 15 15 - (45) (45) - (82) (82) - (112) (112) Changes in risk parameters - 60 60 - (68) (68) - (668) (668) - (676) (676) Write-offs - - - - - - (340) 340 - (340) 340 - Interest due but unpaid - - - - - - (120) 120 - (120) 120 - Discount unwind - - - - - - - 155 155 - 155 155 Exchange translation differences and other movements (360) 308 (52) (1,148) (283) (1,431) (188) (184) (372) (1,696) (159) (1,855) As at 31 December 2023 337,189 (151) 337,038 16,873 (318) 16,555 6,256 (3,651) 2,605 360,318 (4,120) 356,198 Income statement ECL (charge)/release2 2 (24) (127) (149) Recoveries of amounts previously written off - - 31 31 Total credit impairment (charge)/release 2 (24) (96) (118) 1 The gross balance includes the notional amount of off balance sheet instruments 2 Does not include release relating to Other assets (31 December 2022: $2 million) Page 21 Consumer, Private and Business Banking (audited) Amortised cost and FVOCI Stage 1 Stage 2 Stage 3 Total Gross balance�� $million Total credit impair-ment $million Net $million Gross balance�� $million Total credit impair-ment $million Net $million Gross balance�� $million Total credit impair-ment $million Net $million Gross balance�� $million Total credit impair-ment $million Net $million As at 1 January 2022 190,860 (377) 190,483 3,675 (185) 3,490 1,578 (797) 781 196,113 (1,359) 194,754 Transfers to stage 1 4,798 (314) 4,484 (4,765) 314 (4,451) (33) - (33) - - - Transfers to stage 2 (5,498) 92 (5,406) 5,578 (92) 5,486 (80) - (80) - - - Transfers to stage 3 (81) - (81) (890) 151 (739) 971 (151) 820 - - - Net change in exposures 9,072 (49) 9,023 (1,611) 19 (1,592) (396) - (396) 7,065 (30) 7,035 Net remeasurement from stage changes - 32 32 - (82) (82) - (25) (25) - (75) (75) Changes in risk parameters - 63 63 - (132) (132) - (331) (331) - (400) (400) Write-offs - - - - - - (535) 535 - (535) 535 - Interest due but unpaid - - - - - - (27) 27 - (27) 27 - Discount unwind - - - - - - - 26 26 - 26 26 Exchange translation differences and other movements (5,912) 140 (5,772) (166) (111) (277) (24) (60) (84) (6,102) (31) (6,133) As at 31 December 2022 193,239 (413) 192,826 1,821 (118) 1,703 1,454 (776) 678 196,514 (1,307) 195,207 Income statement ECL (charge)/release 46 (195) (356) (505) Recoveries of amounts previously written off - - 245 245 Total credit impairment (charge)/release 46 (195) (111) (260) As at 1 January 2023 193,239 (413) 192,826 1,821 (118) 1,703 1,454 (776) 678 196,514 (1,307) 195,207 Transfers to stage 1 4,265 (246) 4,019 (4,254) 246 (4,008) (11) - (11) - - - Transfers to stage 2 (7,544) 73 (7,471) 7,667 (73) 7,594 (123) - (123) - - - Transfers to stage 3 (64) 1 (63) (1,049) 187 (862) 1,113 (188) 925 - - - Net change in exposures 1,965 (78) 1,887 (1,713) 14 (1,699) (395) - (395) (143) (64) (207) Net remeasurement from stage changes - 31 31 - (137) (137) - (38) (38) - (144) (144) Changes in risk parameters - 110 110 - (69) (69) - (426) (426) - (385) (385) Write-offs - - - - - - (649) 649 - (649) 649 - Interest due but unpaid - - - - - - 37 (37) - 37 (37) - Discount unwind - - - - - - - 24 24 - 24 24 Exchange translation differences and other movements (862) 197 (665) - (190) (190) 59 33 92 (803) 40 (763) As at 31 December 2023 190,999 (325) 190,674 2,472 (140) 2,332 1,485 (759) 726 194,956 (1,224) 193,732 Income statement ECL (charge)/release 63 (192) (464) (593) Recoveries of amounts previously written off - - 239 239 Total credit impairment (charge)/release 63 (192) (225) (354) 1 The gross balance includes the notional amount of off-balance sheet instruments Page 22 Consumer, Private and Business Banking - Secured (audited) Amortised cost and FVOCI Stage 1 Stage 2 Stage 3 Total Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million As at 1 January 2022 136,600 (96) 136,504 2,685 (32) 2,653 1,103 (517) 586 140,388 (645) 139,743 Transfers to stage 1 3,080 (28) 3,052 (3,054) 28 (3,026) (26) - (26) - - - Transfers to stage 2 (3,254) 11 (3,243) 3,319 (11) 3,308 (65) - (65) - - - Transfers to stage 3 (38) 1 (37) (473) 1 (472) 511 (2) 509 - - - Net change in exposures 3,093 (8) 3,085 (945) 1 (944) (259) - (259) 1,889 (7) 1,882 Net remeasurement from stage changes - 1 1 - (1) (1) - (4) (4) - (4) (4) Changes in risk parameters - (4) (4) - 48 48 - (80) (80) - (36) (36) Write-offs - - - - - - (78) 78 - (78) 78 - Interest due but unpaid - - - - - - - - - - - - Discount unwind - - - - - - - - - - - - Exchange translation differences and other movements (4,119) 63 (4,056) (119) (51) (170) (158) (27) (185) (4,396) (15) (4,411) As at 31 December 2022 135,362 (60) 135,302 1,413 (17) 1,396 1,028 (552) 476 137,803 (629) 137,174 Income statement ECL (charge)/release (11) 48 (84) (47) Recoveries of amounts previously written off - - 55 55 Total credit impairment (charge)/release (11) 48 (29) 8 As at 1 January 2023 135,362 (60) 135,302 1,413 (17) 1,396 1,028 (552) 476 137,803 (629) 137,174 Transfers to stage 1 3,311 (20) 3,291 (3,302) 20 (3,282) (9) - (9) - - - Transfers to stage 2 (5,340) 11 (5,329) 5,436 (9) 5,427 (96) (2) (98) - - - Transfers to stage 3 (28) 1 (27) (463) 1 (462) 491 (2) 489 - - - Net change in exposures (3,138) (16) (3,154) (1,250) 3 (1,247) (216) - (216) (4,604) (13) (4,617) Net remeasurement from stage changes - 4 4 - (16) (16) - (3) (3) - (15) (15) Changes in risk parameters - 22 22 - 24 24 - (110) (110) - (64) (64) Write-offs - - - - - - (109) 109 - (109) 109 - Interest due but unpaid - - - - - - (3) 3 - (3) 3 - Discount unwind - - - - - - - 12 12 - 12 12 Exchange translation differences and other movements (369) 25 (344) (7) (22) (29) (24) 20 (4) (400) 23 (377) As at 31 December 2023 129,798 (33) 129,765 1,827 (16) 1,811 1,062 (525) 537 132,687 (574) 132,113 Income statement ECL (charge)/release 10 11 (113) (92) Recoveries of amounts previously written off - - 68 68 Total credit impairment (charge)/release 10 11 (45) (24) 1 The gross balance includes the notional amount of off-balance sheet instruments Page 23 Consumer, Private and Business Banking - Unsecured (audited) Amortised cost and FVOCI Stage 1 Stage 2 Stage 3 Total Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million Gross balance1 $million Total credit impair-ment $million Net $million As at 1 January 2022 54,260 (281) 53,979 990 (153) 837 475 (280) 195 55,725 (714) 55,011 Transfers to stage 1 1,718 (286) 1,432 (1,711) 286 (1,425) (7) - (7) - - - Transfers to stage 2 (2,244) 81 (2,163) 2,259 (81) 2,178 (15) - (15) - - - Transfers to stage 3 (43) (1) (44) (417) 150 (267) 460 (149) 311 - - - Net change in exposures 5,979 (41) 5,938 (666) 18 (648) (137) - (137) 5,176 (23) 5,153 Net remeasurement from stage changes - 31 31 - (81) (81) - (21) (21) - (71) (71) Changes in risk parameters - 67 67 - (180) (180) - (251) (251) - (364) (364) Write-offs - - - - - - (457) 457 - (457) 457 - Interest due but unpaid - - - - - - (27) 27 - (27) 27 - Discount unwind - - - - - - - 26 26 - 26 26 Exchange translation differences and other movements (1,793) 77 (1,716) (47) (60) (107) 134 (33) 101 (1,706) (16) (1,722) As at 31 December 2022 57,877 (353) 57,524 408 (101) 307 426 (224) 202 58,711 (678) 58,033 Income statement ECL (charge)/release 57 (243) (272) (458) Recoveries of amounts previously written off - - 190 190 Total credit impairment (charge)/release 57 (243) (82) (268) As at 1 January 2023 57,877 (353) 57,524 408 (101) 307 426 (224) 202 58,711 (678) 58,033 Transfers to stage 1 954 (226) 728 (952) 226 (726) (2) - (2) - - - Transfers to stage 2 (2,204) 62 (2,142) 2,231 (64) 2,167 (27) 2 (25) - - - Transfers to stage 3 (36) - (36) (586) 186 (400) 622 (186) 436 - - - Net change in exposures 5,103 (62) 5,041 (463) 11 (452) (179) - (179) 4,461 (51) 4,410 Net remeasurement from stage changes - 27 27 - (121) (121) - (35) (35) - (129) (129) Changes in risk parameters - 88 88 - (93) (93) - (316) (316) - (321) (321) Write-offs - - - - - - (540) 540 - (540) 540 - Interest due but unpaid - - - - - - 40 (40) - 40 (40) - Discount unwind - - - - - - - 12 12 - 12 12 Exchange translation differences and other movements (493) 172 (321) 7 (168) (161) 83 13 96 (403) 17 (386) As at 31 December 2023 61,201 (292) 60,909 645 (124) 521 423 (234) 189 62,269 (650) 61,619 Income statement ECL (charge)/release 53 (203) (351) (501) Recoveries of amounts previously written off - - 171 171 Total credit impairment (charge)/release 53 (203) (180) (330) 1 The gross balance includes the notional amount of off-balance sheet instruments Page 24 Analysis of stage 2 balances The table below analyses total stage 2 gross on-and off-balance sheet exposures and associated expected credit provisions by the key significant increase in credit risk (SICR) driver that caused the exposures to be classified as stage 2 as at 31 December 2023 and 31 December 2022 for each segment. Where multiple drivers apply, the exposure is allocated based on the table order. For example, a loan may have breached the PD thresholds and could also be on non-purely precautionary early alert; in this instance, the exposure is reported under 'Increase in PD'. 2023 Corporate, Commercial & Institutional Banking Consumer, Private & Business Banking Ventures Central & other items1 Total Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Increase in PD 8,262 75 0.9% 1,962 109 5.6% 96 23 24.0% 599 13 2.2% 10,919 220 2.0% Non-purely precautionary early alert 5,136 26 0.5% 37 - 0.0% - - 0.0% - - 0.0% 5,173 26 0.5% Higher risk (CG12) 1,008 56 5.6% 26 1 3.8% - - 0.0% 2,020 17 0.8% 3,054 74 2.4% Sub-investment grade - - 0.0% - - 0.0% - - 0.0% - - 0.0% - - 0.0% Top up/Sell down (Private Banking) - - 0.0% 148 2 1.4% - - 0.0% - - 0.0% 148 2 1.4% Others 2,467 37 1.5% 151 16 10.6% - - 0.0% 489 - 0.0% 3,107 53 1.7% 30 days past due - - 0.0% 148 12 8.1% 2 - 0.0% - - 0.0% 150 12 8.0% Management overlay - 124 0.0% - - 0.0% - - 0.0% - 17 0.0% - 141 0.0% Total stage 2 16,873 318 1.9% 2,472 140 5.7% 98 23 23.5% 3,108 47 1.5% 22,551 528 2.3% 2022 Corporate, Commercial & Institutional Banking Consumer, Private & Business Banking Ventures Central & other items1 Total Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Gross $million ECL $million Coverage % Increase in PD 13,620 192 1.4% 1,389 89 6.4% - - 0.0% 2,973 11 0.4% 17,982 292 1.6% Non-purely precautionary early alert 3,272 12 0.4% 35 - 0.0% - - 0.0% 5 - 0.0% 3,312 12 0.4% Higher risk (CG12) 653 30 4.6% 18 1 5.6% - - 0.0% 2,534 69 2.7% 3,205 100 3.1% Sub-investment grade - - 0.0% - - 0.0% - - 0.0% 95 11 11.6% 95 11 11.6% Top up/Sell down (Private Banking) - - 0.0% 111 - 0.0% - - 0.0% - - 0.0% 111 - 0.0% Others 2,603 41 1.6% 122 4 3.3% - - 0.0% 451 7 1.6% 3,176 52 1.6% 30 days past due - - 0.0% 146 12 8.2% 47 3 6.4% - - 0.0% 193 15 7.8% Management overlay - 136 0.0% - 12 0.0% - - 0.0% - - 0.0% - 148 0.0% Total stage 2 20,148 411 2.0% 1,821 118 6.5% 47 3 6.4% 6,058 98 1.6% 28,074 630 2.2% 1 Includes Gross and ECL for Cash and balances at central banks and Assets held for sale Page 25 Credit impairment charge (audited) The table below analyses credit impairment charges or releases of the ongoing business portfolio and restructuring business portfolio for the year ended 31 December 2023. Further details can be found in the 'Summary of performance in 2023'. 2023 20221 Stage 1 & 2 $million Stage 3 $million Total $million Stage 1 & 2 $million Stage 3 $million Total $million Ongoing business portfolio Corporate, Commercial & Institutional Banking 11 112 123 148 277 425 Consumer, Private & Business Banking 129 225 354 151 111 262 Ventures 42 43 85 13 3 16 Central & other items (44) 10 (34) 95 38 133 Credit impairment charge/(release) 138 390 528 407 429 836 Restructuring business portfolio Others 1 (21) (20) (1) 1 - Credit impairment charge/(release) 1 (21) (20) (1) 1 - Total credit impairment charge/(release) 139 369 508 406 430 836 1 Underlying credit impairment has been restated for the removal of (i) exit markets and businesses in AME and (ii) Aviation Finance. No change to reported credit impairment Problem credit management and provisioning (audited) Forborne and other modified loans by client segment A forborne loan arises when a concession has been made to the contractual terms of a loan in response to a customer's financial difficulties. Net forborne loans decreased by $120 million to $1,005 million (31 December 2022: $1,125 million) largely on performing forborne loans stock. The net performing forborne loans declined from $151 million to $38 million while net non-performing forborne loans remained stable at $967 million (31 December 2022: $974 million). Amortised cost 2023 2022 Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Total $million Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Total $million All loans with forbearance measures 2,340 314 - 2,654 2,129 377 - 2,506 Credit impairment (stage 1 and 2) - (2) - (2) (1) - - (1) Credit impairment (stage 3) (1,529) (118) - (1,647) (1,253) (127) - (1,380) Net carrying value 811 194 - 1,005 875 250 - 1,125 Included within the above table Gross performing forborne loans - 40 - 40 89 63 - 152 Modification of terms and conditions1 - 40 - 40 89 63 - 152 Refinancing2 - - - - - - - - Impairment provisions - (2) - (2) (1) - - (1) Modification of terms and conditions1 - (2) - (2) (1) - - (1) Refinancing2 - - - - - - - - Net performing forborne loans - 38 - 38 88 63 - 151 Collateral - 31 - 31 7 60 - 67 Gross non-performing forborne loans 2,340 274 - 2,614 2,040 314 - 2,354 Modification of terms and conditions1 2,113 274 - 2,387 1,997 314 - 2,311 Refinancing2 227 - - 227 43 - - 43 Impairment provisions (1,529) (118) - (1,647) (1,253) (127) - (1,380) Modification of terms and conditions1 (1,337) (118) - (1,454) (1,210) (127) - (1,337) Refinancing2 (192) - - (192) (43) - - (43) Net non-performing forborne loans 811 156 - 967 787 187 - 974 Collateral 341 49 - 390 243 68 - 311 1 Modification of terms is any contractual change apart from refinancing, as a result of credit stress of the counterparty, i.e. interest reductions, loan covenant waivers 2 Refinancing is a new contract to a borrower in credit stress, such that they are refinanced and can pay other debt contracts that they were unable to honour Page 26 Forborne and other modified loans by region Net forborne loans decreased by $120 million to $1,005 million (31 December 2022: $1,125 million) mainly in the performing forborne loans, in particular the Asia and the Europe and Americas regions. Amortised cost 2023 2022 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Asia $million Africa & Middle East $million Europe & Americas $million Total $million Performing forborne loans 34 4 - 38 129 9 13 151 Stage 3 forborne loans 661 75 231 967 568 144 262 974 Net forborne loans 695 79 231 1,005 697 153 275 1,125 Stage 3 cover ratio (audited) The stage 3 cover ratio measures the proportion of stage 3 impairment provisions to gross stage 3 loans, and is a metric commonly used in considering impairment trends. This metric does not allow for variations in the composition of stage 3 loans and should be used in conjunction with other Credit Risk information provided, including the level of collateral cover. The balance of stage 3 loans not covered by stage 3 impairment provisions represents the adjusted value of collateral held and the net outcome of any workout or recovery strategies. Collateral provides risk mitigation to some degree in all client segments and supports the credit quality and cover ratio assessments post impairment provisions. Further information on collateral is provided in the 'Credit Risk mitigation' section. Further details on stage 3 loans and advances and cover ratio can be found in the 'Summary of performance in 2023'. Amortised cost 2023 2022 Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Central & Others $million Total $million Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Central & Others $million Total $million Gross credit-impaired 5,508 1,484 12 224 7,228 6,143 1,453 1 248 7,845 Credit impairment provisions (3,533) (760) (12) (15) (4,320) (3,662) (776) (1) (18) (4,457) Net credit-impaired 1,975 724 - 209 2,908 2,481 677 - 230 3,388 Cover ratio 64% 51% 100% 7% 60% 60% 53% 100% 7% 57% Collateral ($ million) 623 554 - - 1,177 956 543 - - 1,499 Cover ratio (after collateral) 75% 89% 100% 7% 76% 75% 91% 100% 7% 76% Credit-impaired (stage 3) loans and advances by geographic region Stage 3 gross loans decreased by $0.6 billion to $7.2 billion (31 December 2022: $7.8 billion). The decrease was primarily driven by repayments and write-offs in the Africa and the Middle East, which was offset by new inflows in Asia. Further details can be found in the 'Summary of performance in 2023'. Amortised cost 2023 2022 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Asia $million Africa & Middle East $million Europe & Americas $million Total $million Gross credit-impaired 4,604 2,273 351 7,228 4,562 2,725 558 7,845 Credit impairment provisions (2,734) (1,388) (198) (4,320) (2,483) (1,765) (209) (4,457) Net credit-impaired 1,870 885 153 2,908 2,079 960 349 3,388 Cover ratio 59% 61% 56% 60% 54% 65% 37% 57% Credit Risk mitigation Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral, netting arrangements, credit insurance and credit derivatives, taking into account expected volatility and guarantees. The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation correlation and counterparty risk of the guarantor. Page 27 Collateral (audited) A secured loan is one where the borrower pledges an asset as collateral of which the Group is able to take possession in the event that the borrower defaults. The unadjusted market value of collateral across all asset types, in respect of CCIB, without adjusting for over-collateralisation, reduced to $290 billion (31 December 2022: $345 billion) predominantly due to a reduction in reverse repos. The collateral values in the table below (which covers loans and advances to banks and customers, excluding those held at fair value through profit or loss) are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation. The extent of over-collateralisation has been determined with reference to both the drawn and undrawn components of exposure as this best reflects the effect of collateral and other credit enhancements on the amounts arising from expected credit losses. The value of collateral reflects management's best estimate and is backtested against our prior experience. On average, across all types of non-cash collateral, the value ascribed is approximately half of its current market value. CCIB collateral decreased by $1.7 billion to $36.5 billion (31 December 2022: $38.2 billion) and CPBB collateral decreased by $5.5 billion to $86.8 billion (31 December 2022: $92.4 billion) due to exposure reductions from the mortgage portfolio. Total collateral for Central and other items decreased by $8.7 billion to $2.5 billion (31 December 2022: $11.2 billion) due to a decrease in stage 1 reverse repos. However, collateral for stage 2 Central and other items increased by $1 billion (31 December 2022: Nil) due to short-term reverse repo with a Central Bank in the Africa and Middle East region. Collateral held on loans and advances The table below details collateral held against exposures, separately disclosing stage 2 and stage 3 exposure and corresponding collateral. Amortised cost 2023 Net amount outstanding Collateral Net exposure Total $million Stage 2 financial assets $million Credit-impaired financial assets (S3) $million Total2 $million Stage 2 financial assets $million Credit-impaired financial assets (S3) $million Total $million Stage 2 financial assets $million Credit-impaired financial assets (S3) $million Corporate, Commercial & Institutional Banking1 175,382 8,175 2,046 36,458 2,972 623 138,924 5,203 1,423 Consumer, Private & Business Banking 126,059 2,163 724 86,827 1,136 554 39,232 1,027 170 Ventures 1,033 33 - - - - 1,033 33 - Central & other items 29,478 964 209 2,475 964 - 27,003 - 209 Total 331,952 11,335 2,979 125,760 5,072 1,177 206,192 6,263 1,802 Amortised cost 2022 Net amount outstanding Collateral Net exposure Total $million Stage 2 financial assets $million Credit-impaired financial assets (S3) $million Total2 $million Stage 2 financial assets $million Credit-impaired financial assets (S3) $million Total $million Stage 2 financial assets $million Credit-impaired financial assets (S3) $million Corporate, Commercial & Institutional Banking1 179,150 11,366 2,526 38,151 3,973 956 140,999 7393 1,570 Consumer, Private & Business Banking 130,955 1,550 677 92,350 1,019 543 38,605 531 134 Ventures 698 17 - - - - 698 17 - Central & other items 39,363 - 230 11,214 - - 28,149 - 230 Total 350,166 12,933 3,433 141,715 4,992 1,499 208,451 7,941 1,934 1 Includes loans and advances to banks 2 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures Page 28 Collateral - Corporate, Commercial & Institutional Banking (audited) Collateral taken for longer-term and sub-investment grade corporate loans reduced to 41 per cent (31 December 2022: 53 per cent) primarily due to the exit of the Aviation business. Our underwriting standards encourage taking specific charges on assets and we consistently seek high-quality, investment-grade collateral. 83 per cent (31 December 2022: 85 per cent) of tangible collateral excluding reverse repurchase agreements and financial guarantees held comprises physical assets or is property based, with the remainder held in cash. Overall collateral decreased by $2 billion to $36 billion (31 December 2022: $38 billion) mainly due to a decrease in property collateral. Non-tangible collateral, such as guarantees and standby letters of credit, is also held against corporate exposures, although the financial effect of this type of collateral is less significant in terms of recoveries. However, this is considered when determining the probability of default and other credit-related factors. Collateral is also held against off balance sheet exposures, including undrawn commitments and trade-related instruments. Corporate, Commercial & Institutional Banking Amortised cost 2023 $million 2022 $million Maximum exposure 175,382 179,150 Property 9,339 10,152 Plant, machinery and other stock 933 1,168 Cash 2,985 2,797 Reverse repos 13,826 14,305 AA- to AA+2 1,036 92 A- to A+2 10,606 10,459 BBB- to BBB+ 855 1,485 Lower than BBB- 169 - Unrated 1,160 2,269 Financial guarantees and insurance 5,057 5,096 Commodities 5 37 Ships and aircraft 4,313 4,596 Total value of collateral1 36,458 38,151 Net exposure 138,924 140,999 1 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures 2 Prior year has been represented to provide granular credit ratings Collateral - Consumer, Private & Business Banking (audited) In CPBB, fully secured products remain stable at 85 per cent of the total portfolio (31 December 2022: 86 per cent). The following table presents an analysis of loans to individuals by product; split between fully secured, partially secured and unsecured. Amortised cost 2023 2022 Fully secured $million Partially secured $million Unsecured $million Total $million Fully secured $million Partially secured $million Unsecured $million Total $million Maximum exposure 106,914 505 18,640 126,059 112,556 449 17,950 130,955 Loans to individuals Mortgages 82,943 - - 82,943 87,212 - - 87,212 CCPL 375 - 17,395 17,770 221 - 16,711 16,932 Auto 312 - - 312 502 - - 502 Secured wealth products 20,303 - - 20,303 19,551 - - 19,551 Other 2,981 505 1,245 4,731 5,070 449 1,239 6,758 Total collateral1 86,827 92,350 Net exposure2 39,232 38,605 Percentage of total loans 85% 0% 15% 86% 0% 14% 1 Collateral values are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation 2 Amounts net of ECL Page 29 Mortgage loan-to-value ratios by geography (audited) Loan-to-value (LTV) ratios measure the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured. In a majority of mortgages, the value of property held as security significantly exceeds principal outstanding of the mortgage loans. The average LTV of the overall mortgage portfolio increased to 47.1 per cent (31 December 2022: 44.7 per cent) driven by property prices decrease in a few key markets, including Hong Kong, Korea and China. Hong Kong, which represents 39.9 per cent of the residential mortgage portfolio, has an average LTV of 55.9 per cent (31 December 2022: 52.6 per cent). The increase of Hong Kong residential mortgage LTV is due to a decrease of the Property Price Index. All of our other key markets continue to have low portfolio LTVs (Korea, Singapore and Taiwan at 40.5 per cent, 43.0 per cent and 47.0 per cent respectively). Korea average LTV increase is due to government relaxations whereby highly regulated areas have eased up to accommodate customers with higher LTV. An analysis of LTV ratios by geography for the mortgage portfolio is presented in the table below. Amortised cost 2023 Asia % Gross Africa & Middle East % Gross Europe & Americas % Gross Total % Gross Less than 50 per cent 55.5 51.1 31.0 54.8 50 per cent to 59 per cent 17.1 14.7 17.4 17.1 60 per cent to 69 per cent 11.4 13.7 33.9 12.0 70 per cent to 79 per cent 7.7 12.8 14.4 7.9 80 per cent to 89 per cent 3.3 3.9 2.5 3.3 90 per cent to 99 per cent 2.6 2.1 0.6 2.5 100 per cent and greater 2.5 1.7 0.3 2.4 Average portfolio loan-to-value 46.9 51.1 56.0 47.1 Loans to individuals - mortgages ($million) 79,517 1,183 2,243 82,943 Amortised cost 2022 Asia1 % Gross Africa & Middle East % Gross Europe & Americas % Gross Total % Gross Less than 50 per cent 60.9 43.0 32.2 60.1 50 per cent to 59 per cent 15.5 18.2 19.2 15.6 60 per cent to 69 per cent 9.8 16.8 31.3 10.2 70 per cent to 79 per cent 6.5 12.8 14.8 6.7 80 per cent to 89 per cent 3.6 5.1 1.1 3.6 90 per cent to 99 per cent 2.5 2.0 - 2.4 100 per cent and greater 1.4 2.2 1.3 1.4 Average portfolio loan-to-value 44.4 54.3 56.6 44.7 Loans to individuals - mortgages ($million) 83,954 1,388 1,870 87,212 Collateral and other credit enhancements possessed or called upon (audited) The Group obtains assets by taking possession of collateral or calling upon other credit enhancements (such as guarantees). Repossessed properties are sold in an orderly fashion. Where the proceeds are in excess of the outstanding loan balance the excess is returned to the borrower. Certain equity securities acquired may be held by the Group for investment purposes and are classified as fair value through profit or loss, and the related loan written off. The carrying value of collateral possessed and held by the Group is $16.5 million (31 December 2022: $14.9 million). 2023 $million 2022 $million Property, plant and equipment 10.5 9.6 Guarantees 6.0 5.3 Total 16.5 14.9 Page 30 Other Credit risk mitigation (audited) Other forms of credit risk mitigation are set out below. Credit default swaps The Group has entered into credit default swaps for portfolio management purposes, referencing loan assets with a notional value of $3.5 billion (31 December 2022: $5.1 billion). These credit default swaps are accounted for as financial guarantees as per IFRS 9 as they will only reimburse the holder for an incurred loss on an underlying debt instrument. The Group continues to hold the underlying assets referenced in the credit default swaps and it continues to be exposed to related Credit Risk and Foreign Exchange Rate Risk on these assets. Credit linked notes The Group has issued credit linked notes for portfolio management purposes, referencing loan assets with a notional value of $22.5 billion (31 December 2022: $13.5 billion). The Group continues to hold the underlying assets for which the credit linked notes provide mitigation. The credit linked notes are recognised as a financial liability at amortised cost on the balance sheet. Derivative financial instruments The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions. Credit Risk mitigation for derivative financial instruments is set out below. Off-balance sheet exposures For certain types of exposures, such as letters of credit and guarantees, the Group obtains collateral such as cash depending on internal Credit Risk assessments, as well as in the case of letters of credit holding legal title to the underlying assets should a default take place. Other portfolio analysis This section provides maturity analysis by credit quality by industry and industry and retail products analysis by region. Maturity analysis of loans and advances by client segment Loans and advances to the CCIB segment remain predominantly short-term, with $91 billion (31 December 2022: $98 billion) maturing in less than one year. 98 per cent (31 December 2022: 96 per cent) of loans to banks mature in less than one year, an increase compared with 2022 as net exposures increased by $5.5 billion to $45 billion (31 December 2022: $39.5 billion). Shorter maturities give us the flexibility to respond promptly to events and rebalance or reduce our exposure to clients or sectors that are facing increased pressure or uncertainty. The CPBB short-term book of one year or less and long-term book of over five years is stable at 26 per cent (31 December 2022: 25 per cent) and 63 per cent (31 December 2022: 64 per cent) of the total portfolio respectively. Amortised cost 2023 One year or less $million One to five years $million Over five years $million Total $million Corporate, Commercial & Institutional Banking 90,728 30,746 12,822 134,296 Consumer, Private & Business Banking 33,397 13,711 80,166 127,274 Ventures 747 334 - 1,081 Central & other items 29,448 43 3 29,494 Gross loans and advances to customers 154,320 44,834 92,991 292,145 Impairment provisions (4,872) (185) (113) (5,170) Net loans and advances to customers 149,448 44,649 92,878 286,975 Net loans and advances to banks 43,955 1,021 1 44,977 Page 31 Amortised cost 2022 One year or less $million One to five years $million Over five years $million Total $million Corporate, Commercial & Institutional Banking 98,335 34,635 10,789 143,759 Consumer, Private & Business Banking 33,365 14,161 84,731 132,257 Ventures 548 162 - 710 Central & other items 39,373 - 8 39,381 Gross loans and advances to customers 171,621 48,958 95,528 316,107 Impairment provisions (4,767) (574) (119) (5,460) Net loans and advances to customers 166,854 48,384 95,409 310,647 Net loans and advances to banks 38,105 1,211 203 39,519 Credit quality by industry Loans and advances This section provides an analysis of the Group's amortised cost portfolio by industry on a gross, total credit impairment and net basis. Amortised cost 2023 Stage 1 Stage 2 Stage 3 Total Gross balance $million Total credit impair-ment $million Net carrying amount $million Gross balance $million Total credit impair-ment $million Net carrying amount $million Gross balance $million Total credit impair-ment $million Net carrying amount $million Gross balance $million Total credit impair-ment $million Net carrying amount $million Industry: Energy 9,397 (8) 9,389 672 (22) 650 949 (535) 414 11,018 (565) 10,453 Manufacturing 21,239 (8) 21,231 708 (16) 692 656 (436) 220 22,603 (460) 22,143 Financing, insurance and non-banking 31,633 (13) 31,620 571 (1) 570 80 (77) 3 32,284 (91) 32,193 Transport, telecom and utilities 14,710 (8) 14,702 1,722 (36) 1,686 481 (178) 303 16,913 (222) 16,691 Food and household products 7,668 (15) 7,653 323 (7) 316 355 (262) 93 8,346 (284) 8,062 Commercial real estate 12,261 (30) 12,231 1,848 (129) 1,719 1,712 (1,191) 521 15,821 (1,350) 14,471 Mining and quarrying 5,995 (4) 5,991 220 (10) 210 151 (84) 67 6,366 (98) 6,268 Consumer durables 5,815 (3) 5,812 300 (21) 279 329 (298) 31 6,444 (322) 6,122 Construction 2,230 (2) 2,228 502 (8) 494 358 (326) 32 3,090 (336) 2,754 Trading companies & distributors 581 - 581 57 - 57 107 (58) 49 745 (58) 687 Government 33,400 (6) 33,394 1,783 (5) 1,778 367 (33) 334 35,550 (44) 35,506 Other 4,262 (4) 4,258 161 (3) 158 187 (70) 117 4,610 (77) 4,533 Retail Products: Mortgage 81,210 (8) 81,202 1,350 (5) 1,345 519 (123) 396 83,079 (136) 82,943 Credit Cards 7,633 (104) 7,529 244 (65) 179 69 (50) 19 7,946 (219) 7,727 Personal loans and other unsecured lending 10,867 (188) 10,679 324 (77) 247 315 (165) 150 11,506 (430) 11,076 Auto 310 - 310 1 - 1 1 - 1 312 - 312 Secured wealth products 19,923 (22) 19,901 278 (10) 268 474 (340) 134 20,675 (372) 20,303 Other 4,558 (7) 4,551 161 (5) 156 118 (94) 24 4,837 (106) 4,731 Net carrying value (customers)�� 273,692 (430) 273,262 11,225 (420) 10,805 7,228 (4,320) 2,908 292,145 (5,170) 286,975 1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $13,996 million Page 32 Amortised cost 2022 Stage 1 Stage 2 Stage 3 Total Gross balance $million Total credit impair-ment $million Net carrying amount $million Gross balance $million Total credit impair-ment $million Net carrying amount $million Gross balance $million Total credit impair-ment $million Net carrying amount $million Gross balance $million Total credit impair-ment $million Net carrying amount $million Industry: Energy 10,959 (8) 10,951 818 (7) 811 1,324 (620) 704 13,101 (635) 12,466 Manufacturing 20,990 (23) 20,967 1,089 (27) 1,062 777 (518) 259 22,856 (568) 22,288 Financing, insurance and non-banking 34,915 (9) 34,906 774 (3) 771 195 (175) 20 35,884 (187) 35,697 Transport, telecom and utilities 14,273 (22) 14,251 2,347 (36) 2,311 669 (224) 445 17,289 (282) 17,007 Food and household products 7,841 (21) 7,820 695 (20) 675 418 (259) 159 8,954 (300) 8,654 Commercial real estate 12,393 (43) 12,350 3,217 (195) 3,022 1,305 (761) 544 16,915 (999) 15,916 Mining and quarrying 5,482 (4) 5,478 537 (5) 532 248 (174) 74 6,267 (183) 6,084 Consumer durables 6,403 (4) 6,399 420 (17) 403 358 (307) 51 7,181 (328) 6,853 Construction 2,424 (2) 2,422 407 (5) 402 495 (410) 85 3,326 (417) 2,909 Trading companies & distributors 2,205 (1) 2,204 170 (2) 168 122 (80) 42 2,497 (83) 2,414 Government 42,825 (2) 42,823 603 (1) 602 168 (15) 153 43,596 (18) 43,578 Other 4,684 (4) 4,680 278 (5) 273 312 (137) 175 5,274 (146) 5,128 Retail Products: Mortgage 85,859 (12) 85,847 996 (7) 989 556 (180) 376 87,411 (199) 87,212 Credit Cards 6,912 (103) 6,809 155 (46) 109 59 (44) 15 7,126 (193) 6,933 Personal loans and other unsecured lending 10,652 (253) 10,399 215 (57) 158 296 (156) 140 11,163 (466) 10,697 Auto 501 - 501 1 - 1 - - - 502 - 502 Secured wealth products 19,269 (45) 19,224 235 (10) 225 407 (305) 102 19,911 (360) 19,551 Other 6,632 (3) 6,629 86 (1) 85 136 (92) 44 6,854 (96) 6,758 Net carrying value (customers)�� 295,219 (559) 294,660 13,043 (444) 12,599 7,845 (4,457) 3,388 316,107 (5,460) 310,647 1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $24,498 million Industry and Retail Products analysis of loans and advances by geographic region This section provides an analysis of the Group's amortised cost loan portfolio, net of provisions, by industry and region. In the CCIB and Central and other items segment, our largest industry exposures are to Government, Financing, insurance and non-banking and Manufacturing with each constituting at least 8 per cent of CCIB and Central and other items loans and advances to customers. Financing, insurance and non-banking industry clients are mostly investment-grade institutions and this lending forms part of the liquidity management of the Group. The Manufacturing sector group is spread across a diverse range of industries, including automobiles and components, capital goods, pharmaceuticals, biotech and life sciences, technology hardware and equipment, chemicals, paper products and packaging, with lending spread over 3,255 clients. The Mortgage portfolio continues to be the largest portion of the CPBB portfolio at $83.1 billion (31 December 2022: $87.4 billion), of which 96 per cent continues to be in Asia. Credit cards, personal loans and other unsecured lending increased to 15 per cent (31 December 2022: 14 per cent) of the CPBB portfolio, mainly in Asia due to the growth from Mox Bank and digital partnerships. In Asia, the Financing, insurance and non-banking industry decreased by $1.9 billion to $22.8 billion (31 December 2022: $24.7 billion) while the CRE sector decreased by $2 billion to $11.2 billion (31 December 2022: $13.2 billion) due to exposure reductions. The Government sector decreased by $9.2 billion to $30.5 billion (31 December 2022: $39.7 billion) due to decreased lending to Korea. Page 33 Amortisecd cost 2023 2022 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Asia $million Africa & Middle East $million Europe & Americas $million Total $million Industry: Energy 4,143 3,986 2,324 10,453 6,250 2,278 3,938 12,466 Manufacturing 16,828 1,077 4,238 22,143 17,388 1,267 3,633 22,288 Financing, insurance and non-banking 22,771 829 8,593 32,193 24,674 761 10,262 35,697 Transport, telecom and utilities 12,122 2,650 1,919 16,691 10,841 3,567 2,599 17,007 Food and household products 4,856 1,726 1,480 8,062 4,160 2,566 1,928 8,654 Commercial real estate 11,176 623 2,672 14,471 13,179 598 2,139 15,916 Mining and quarrying 3,856 375 2,037 6,268 3,785 390 1,909 6,084 Consumer durables 5,033 429 660 6,122 5,860 461 532 6,853 Construction 1,803 333 618 2,754 1,775 625 509 2,909 Trading companies and distributors 527 109 51 687 2,281 101 32 2,414 Government 30,487 4,778 241 35,506 39,713 3,759 106 43,578 Other 3,401 584 548 4,533 3,636 702 790 5,128 Retail Products: Mortgages 79,517 1,183 2,243 82,943 83,954 1,388 1,870 87,212 Credit Cards 7,449 278 - 7,727 6,642 291 - 6,933 Personal loans and other unsecured lending 9,426 1,565 85 11,076 9,056 1,541 100 10,697 Auto 295 17 - 312 469 33 - 502 Secured wealth products 18,774 987 542 20,303 17,876 1,048 627 19,551 Other 4,671 60 - 4,731 6,676 82 - 6,758 Net loans and advances to customers 237,135 21,589 28,251 286,975 258,215 21,458 30,974 310,647 Net loans and advances to banks 35,417 3,106 6,454 44,977 22,058 3,929 13,532 39,519 Vulnerable, cyclical and high carbon sectors Vulnerable and cyclical sectors are those that the Group considers to be most at risk from current economic stresses, including volatile energy and commodity prices, and we continue to monitor exposures to these sectors particularly carefully. Sectors are identified and grouped as per the International Standard Industrial Classification (ISIC) system and exposure numbers have been updated to include all in-scope ISIC codes used for target setting among the high carbon sectors. The maximum exposures shown in the table include Loans and Advances to Customers at Amortised cost, Fair Value through profit or loss, and committed facilities available as per IFRS 9 - Financial Instruments in $million. Further details can be found in the 'Summary of Performance in 2023'. Page 34 Maximum exposure 2023 Maximum on Balance Sheet Exposure (net of credit impairment) $million Collateral $million Net On Balance Sheet Exposure $million Undrawn Commitments (net of credit impairment) $million Financial Guarantees (net of credit impairment) $million Net Off Balance Sheet Exposure $million Total On & Off Balance Sheet Net Exposure $million Industry: Automotive manufacturers�� 3,564 65 3,499 3,791 538 4,329 7,828 Aviation1,2 1,775 974 801 1,794 668 2,462 3,263 Of which : High Carbon Sector 1,330 974 356 944 615 1,559 1,915 Commodity Traders2 7,406 303 7,103 2,591 6,281 8,872 15,975 Metals & Mining1.2 4,589 307 4,282 3,373 1,218 4,591 8,873 Of which: Steel1 1,596 193 1,403 601 358 959 2,362 Of which: Coal Mining1 29 9 20 51 99 150 170 Of which: Aluminium1 526 9 517 338 188 526 1,043 Of which: Other Metals & Mining1 2,438 96 2,342 2,383 573 2,956 5,298 Shipping1 5,964 3,557 2,407 2,261 291 2,552 4,959 Construction2 2,853 448 2,405 2,753 5,927 8,680 11,085 Commercial Real Estate2 14,533 6,363 8,170 4,658 311 4,969 13,139 Of which: High Carbon Sector 7,498 3,383 4,115 1,587 112 1,699 5,814 Hotels & Tourism2 1,680 715 965 1,339 227 1,566 2,531 Oil & Gas1,2 6,278 894 5,384 7,845 6,944 14,789 20,173 Power1 5,411 1,231 4,180 3,982 732 4,714 8,894 Total3 54,053 14,857 39,196 34,387 23,137 57,524 96,720 Of which: Vulnerable and cyclical sectors 38,880 9,983 28,897 24,842 21,511 46,353 75,250 Of which: High carbon sectors4 34,634 10,411 24,223 23,783 10,450 34,233 58,456 Total Corporate, Commercial & Institutional Banking 130,405 32,744 97,661 104,437 63,183 167,620 265,281 Total Group 331,952 125,760 206,192 182,299 74,278 256,577 462,769 1 High carbon sectors 2 Vulnerable and cyclical sectors 3 Maximum On Balance sheet exposure include FVTPL portion of $955 million, of which Vulnerable sector is $821 million and High Carbon sector is $443 million 4 Excluded Cement to the value of $671 million net of ECL under Construction Page 35 2022 Maximum On Balance Sheet Exposure (net of credit impairment) $million Collateral $million Net On Balance Sheet Exposure $million Undrawn Commitments (net of credit impairment) $million Financial Guarantees (net of credit impairment) $million Net Off Balance Sheet Exposure $million Total On & Off Balance Sheet Net Exposure $million Industry: Automotive manufacturers1 3,167 84 3,083 3,683 560 4,243 7,326 Aviation1,2,3 3,154 1,597 1,557 1,762 632 2,394 3,951 Of which : High Carbon Sector 2,540 1,582 958 695 555 1,250 2,208 Commodity Traders2 8,133 341 7,792 2,578 6,095 8,673 16,465 Metals & Mining1.2 4,990 333 4,657 3,732 930 4,662 9,319 Of which: Steel1 1,227 157 1,070 1,450 327 1,777 2,847 Of which: Coal Mining1 48 15 33 8 7 15 48 Of which: Aluminium1 728 107 621 285 74 359 980 Of which: Other Metals & Mining1 2,987 54 2,933 1,989 522 2,511 5,444 Shipping1 5,322 3,167 2,155 1,870 256 2,126 4,281 Construction2 2,909 552 2,357 2,762 5,969 8,731 11,088 Commercial Real Estate2 16,286 7,205 9,081 6,258 224 6,482 15,563 Of which: High Carbon Sector 6,547 2,344 4,203 3,996 90 4,086 8,289 Hotels & Tourism2 1,741 919 822 1,346 138 1,484 2,306 Oil & Gas1,2 6,668 806 5,862 7,630 7,158 14,788 20,650 Power1 4,771 1,258 3,513 4,169 1,176 5,345 8,858 Total4 57,141 16,262 40,879 35,790 23,138 58,928 99,807 Of which: Vulnerable and cyclical sectors 43,678 11,741 31,937 25,761 21,068 46,829 78,766 Of which: High carbon sectors5 34,005 9,574 24,431 25,775 10,725 36,500 60,931 Total Corporate, Commercial & Institutional Banking 139,631 35,229 104,402 95,272 51,662 146,934 251,336 Total Group 350,166 141,715 208,451 168,574 60,224 228,798 437,249 1 High carbon sectors 2 Vulnerable and cyclical sectors 3 In addition to the aviation sector loan exposures, the Group owns $3.2 billion of aircraft under operating leases in 2022 4 Maximum On Balance sheet exposure include FVTPL portion of $1,251 million, of which Vulnerable sector is $1,072 million and High Carbon sector is $574 million 5 Excluded Cement to the value of $671 million net of ECL under Construction Loans and advances by stage Amortised Cost 2023 Stage 1 Stage 2 Stage 3 Total Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Industry: Aviation 1,619 - 1,619 55 (1) 54 74 (15) 59 1,748 (16) 1,732 Commodity Traders 6,912 (2) 6,910 129 (1) 128 555 (504) 51 7,596 (507) 7,089 Metals & Mining 3,934 (1) 3,933 140 (8) 132 154 (88) 66 4,228 (97) 4,131 Construction 2,230 (2) 2,228 502 (8) 494 358 (326) 32 3,090 (336) 2,754 Commercial Real Estate 12,261 (30) 12,231 1,848 (129) 1,719 1,712 (1,191) 521 15,821 (1,350) 14,471 Hotels & Tourism 1,468 (2) 1,466 61 - 61 126 (25) 101 1,655 (27) 1,628 Oil & Gas 5,234 (4) 5,230 615 (15) 600 571 (147) 424 6,420 (166) 6,254 Total 33,658 (41) 33,617 3,350 (162) 3,188 3,550 (2,296) 1,254 40,558 (2,499) 38,059 Total Corporate, Commercial & Institutional Banking 120,886 (101) 120,785 7,902 (257) 7,645 5,508 (3,533) 1,975 134,296 (3,891) 130,405 Total Group 318,076 (438) 317,638 11,765 (430) 11,335 7,305 (4,326) 2,979 337,146 (5,194) 331,952 Page 36 Amortised Cost 2022 Stage 1 Stage 2 Stage 3 Total Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Gross Balance $million Total Credit Impair-ment $million Net Carrying Amount $million Industry: Aviation�� 2,377 (1) 2,376 573 - 573 155 (32) 123 3,105 (33) 3,072 Commodity Traders 7,187 (6) 7,181 138 (2) 136 689 (435) 254 8,014 (443) 7,571 Metals & Mining 4,184 (1) 4,183 475 (4) 471 257 (157) 100 4,916 (162) 4,754 Construction 2,424 (2) 2,422 407 (5) 402 497 (412) 85 3,328 (419) 2,909 Commercial Real Estate 12,393 (43) 12,350 3,217 (195) 3,022 1,305 (761) 544 16,915 (999) 15,916 Hotels & Tourism 1,448 (2) 1,446 108 (1) 107 206 (18) 188 1,762 (21) 1,741 Oil & Gas 5,468 (4) 5,464 708 (6) 702 919 (442) 477 7,095 (452) 6,643 Total 35,481 (59) 35,422 5,626 (213) 5,413 4,028 (2,257) 1,771 45,135 (2,529) 42,606 Total Corporate, Commercial & Institutional Banking 126,261 (143) 126,118 11,355 (323) 11,032 6,143 (3,662) 2,481 143,759 (4,128) 139,631 Total Group 334,368 (568) 333,800 13,380 (447) 12,933 7,904 (4,471) 3,433 355,652 (5,486) 350,166 1 In addition to the aviation sector loan exposures, the Group owns $3.2 billion of aircraft under operating leases in 2022 Loans and advances by region (net of credit impairment) 2023 2022�� Asia $million Africa & Middle East $million Europe & Americas $million Total $million Asia $million Africa & Middle East $million Europe & Americas $million Total $million Industry: Aviation 1,077 7 648 1,732 1,105 1,259 708 3,072 Commodity Traders 3,778 675 2,636 7,089 3,497 978 3,096 7,571 Metals & Mining 1,628 1,522 981 4,131 2,966 347 1,441 4,754 Construction 1,803 333 618 2,754 1,776 624 509 2,909 Commercial Real Estate 11,176 623 2,672 14,471 13,180 598 2,138 15,916 Hotel & Tourism 998 178 452 1,628 880 465 396 1,741 Oil & Gas 2,639 1,815 1,800 6,254 3,574 1,445 1,624 6,643 Total 23,099 5,153 9,807 38,059 26,978 5,716 9,912 42,606 1 In addition to the aviation sector loan exposures, the Group owns $3.2 billion of aircraft under operating leases in 2022 Credit quality - loans and advances Amortised Cost Credit Grade 2023 Aviation Gross $million Commodity Traders Gross $million Construction Gross $million Metals & Mining Gross $million Commercial Real Estate Gross $million Hotel & Tourism Gross $million Oil & Gas Gross $million Total Gross $million Strong 1,452 4,444 1,012 3,213 7,326 1,090 4,024 22,561 Satisfactory 222 2,592 1,702 788 6,751 439 1,726 14,220 Higher risk - 5 18 73 32 - 101 229 Credit impaired (stage 3) 74 555 358 154 1,712 126 569 3,548 Total Gross Balance 1,748 7,596 3,090 4,228 15,821 1,655 6,420 40,558 Strong - (1) (1) - (20) (1) (3) (26) Satisfactory (1) (2) (6) (1) (139) (1) (12) (162) Higher risk - - (4) (8) - - (4) (16) Credit impaired (stage 3) (15) (504) (325) (88) (1,191) (25) (147) (2,295) Total Credit Impairment (16) (507) (336) (97) (1,350) (27) (166) (2,499) Strong 0.0% 0.0% 0.1% 0.0% 0.3% 0.1% 0.1% 0.1% Satisfactory 0.5% 0.1% 0.4% 0.1% 2.1% 0.2% 0.7% 1.1% Higher risk 0.0% 0.0% 22.2% 11.0% 0.0% 0.0% 4.0% 7.0% Credit impaired (stage 3) 20.3% 90.8% 90.8% 57.1% 69.6% 19.8% 25.8% 64.7% Cover Ratio 0.9% 6.7% 10.9% 2.3% 8.5% 1.6% 2.6% 6.2% Page 37 Credit Grade 2022 Aviation�� Gross $million Commodity Traders Gross $million Construction Gross $million Metals & Mining Gross $million Commercial Real Estate Gross $million Hotel & Tourism Gross $million Oil & Gas Gross $million Total Gross $million Strong 1,437 4,419 1,164 3,425 8,000 1,047 3,923 23,415 Satisfactory 1,413 2,894 1,634 1,208 7,334 494 2,215 17,192 Higher risk 100 12 33 26 276 15 38 500 Credit impaired (stage 3) 155 689 497 257 1,305 206 919 4,028 Total Gross Balance 3,105 8,014 3,328 4,916 16,915 1,762 7,095 45,135 Strong - (3) - - (25) (1) (1) (30) Satisfactory (1) (4) (3) (5) (129) (1) (7) (150) Higher risk - (1) (4) - (84) (1) (2) (92) Credit impaired (stage 3) (32) (435) (412) (157) (761) (18) (442) (2,257) Total Credit Impairment (33) (443) (419) (162) (999) (21) (452) (2,529) Strong 0.0% 0.1% 0.0% 0.0% 0.3% 0.1% 0.0% 0.1% Satisfactory 0.1% 0.1% 0.2% 0.4% 1.8% 0.2% 0.3% 0.9% Higher risk 0.0% 8.3% 12.1% 0.0% 30.4% 6.7% 5.3% 18.4% Credit impaired (stage 3) 20.6% 63.1% 82.9% 61.1% 58.3% 8.7% 48.1% 56.0% Cover Ratio 1.1% 5.5% 12.6% 3.3% 5.9% 1.2% 6.4% 5.6% 1 In addition to the aviation sector loan exposures, the Group owns $3.2 billion of aircraft under operating leases in 2022 Maturity and expected credit loss for high-carbon sectors 2023 Maturity Buckets�� 2023 Loans and advances (Drawn funding) Less than 1 year More than 1 to 5 years More than 5 years Expected Credit Loss Sector $million $million $million $million $million Automotive Manufacturers 3,566 3,106 460 - 2 Aviation 1,339 149 145 1,045 9 Cement 719 512 189 18 48 Coal Mining 42 9 33 - 13 Steel 1,649 1,258 185 206 53 Other Metals & Mining 2,151 1,886 240 25 34 Aluminium 537 442 63 32 11 Oil & Gas 6,444 2,980 1,576 1,888 166 Power 5,516 1,933 1,533 2,050 105 Shipping 5,971 1,051 2,568 2,352 7 Commercial Real Estate 7,664 3,722 3,935 7 166 Total balance1 35,598 17,048 10,927 7,623 614 1 Excluded fair value of Other Metals & Mining of $321 million 2022 Maturity Buckets�� 2022 Loans and advances (Drawn funding) Less than 1 year More than 1 to 5 years More than 5 years Expected Credit Loss Sector $million $million $million $million $million Automotive Manufacturers 3,167 2,450 717 - - Aviation 2,595 118 749 1,728 55 Cement 762 661 63 38 43 Coal Mining 60 2 41 17 12 Steel 1,268 1,080 180 8 41 Other Metals & Mining 1,964 1,660 281 23 44 Aluminium 744 528 114 102 16 Oil & Gas 6,550 3,100 1,734 1,716 238 Power 4,903 1,615 1,279 2,009 132 Shipping 5,374 918 2,567 1,889 52 Commercial Real Estate 6,598 2,568 3,949 81 51 Total balance2 33,985 14,700 11,674 7,611 684 1 Gross of credit impairment 2 Excluded fair value of Other Metals & Mining and Oil & Gas of $58 million Page 38 China commercial real estate The table below represents the on and off-balance sheet items that are exposed to China CRE by credit quality. Further details can be found in the 'Summary of Performance in 2023' 2023 China $million Hong Kong $million Rest of Group1 $million Total $million Loans to customers 584 1,821 39 2,444 Off balance sheet 42 82 - 124 Total as at 31 December 2023 626 1,903 39 2,568 Loans to customers - By Credit quality Gross Strong 33 - - 33 Satisfactory 339 619 39 997 Higher risk 8 - - 8 Credit impaired (stage 3) 204 1,202 - 1,406 Total as at 31 December 2023 584 1,821 39 2,444 Loans to customers - ECL Strong - - - - Satisfactory (3) (134) (12) (149) Higher risk - - - - Credit impaired (stage 3) (70) (941) - (1,011) Total as at 31 December 2023 (73) (1,075) (12) (1,160) 1 Rest of Group mainly includes Singapore 2022 China $million Hong Kong $million Rest of Group1 $million Total $million Loans to customers 953 2,248 39 3,240 Off balance sheet 74 85 8 167 Total as at 31 December 2022 1,027 2,333 47 3,407 Loans to customers - By Credit quality Gross Strong 256 221 - 477 Satisfactory 459 921 39 1,419 Higher risk - 271 - 271 Credit impaired (stage 3) 238 835 - 1,073 Total as at 31 December 2022 953 2,248 39 3,240 Loans to customers - ECL Strong - (19) - (19) Satisfactory (9) (110) - (119) Higher risk - (83) - (83) Credit impaired (stage 3) (37) (559) - (596) Total as at 31 December 2022 (46) (771) - (817) 1 Rest of Group mainly includes Singapore Page 39 Debt securities and other eligible bills (audited) This section provides further detail on gross debt securities and treasury bills. The standard credit ratings used by the Group are those used by Standard & Poor's or its equivalent. Debt securities held that have a short-term rating are reported against the long-term rating of the issuer. For securities that are unrated, the Group applies an internal credit rating, as described under the credit rating and measurement section. Total gross debt securities and other eligible bills decreased by $11.4 billion to $160 billion (31 December 2022: $172 billion) due to action taken to manage liquidity, primarily in stage 1. Stage 1 gross balance decreased by $7.8 billion to $158 billion (31 December 2022: $166 billion) of which $3.4 billion of the decrease was from unrated. Stage 2 gross balance decreased by $3.6 billion to $2 billion (31 December 2022: $5 billion). Stage 3 gross balance was broadly stable at $0.2 billion (31 December 2022: $0.1 billion). Amortised cost and FVOCI 2023 2022 Gross $million ECL $million Net2 $million Gross $million ECL $million Net2 $million Stage 1 158,314 (26) 158,288 166,103 (25) 166,078 AAA 61,920 (5) 61,915 73,933 (10) 73,923 AA- to AA+ 34,244 (2) 34,242 42,327 (4) 42,323 A- to A+ 38,891 (2) 38,889 29,488 (2) 29,486 BBB- to BBB+ 13,098 (7) 13,091 7,387 (1) 7,386 Lower than BBB- 1,611 (2) 1,609 1,047 (2) 1,045 Unrated 8,550 (8) 8,542 11,921 (6) 11,915 - Strong 7,415 (7) 7,408 11,760 (6) 11,754 - Satisfactory 1,135 (1) 1,134 161 - 161 Stage 2 1,860 (34) 1,826 5,455 (90) 5,365 AAA 98 - 98 21 - 21 AA- to AA+ 22 - 22 40 - 40 A- to A+ 81 - 81 17 (1) 16 BBB- to BBB+ 499 (3) 496 2,605 (16) 2,589 Lower than BBB- 893 (30) 863 2,485 (71) 2,414 Unrated 267 (1) 266 287 (2) 285 - Strong 217 - 217 26 (2) 24 - Satisfactory 50 (1) 49 - - - - Higher risk - - - 261 - 261 Stage 3 164 (61) 103 144 (106) 38 Lower than BBB- 72 (4) 68 67 (55) 12 Unrated 92 (57) 35 77 (51) 26 Gross balance�� 160,338 (121) 160,217 171,702 (221) 171,481 1 Stage 3 gross includes $80 million (31 December 2022: $28 million) originated credit-impaired debt securities with impairment of $14 million (31 December 2022: $13 million) 2 FVOCI instrument are not presented net of ECL. While the presentation is on a net basis for the table, the total net on-balance sheet amount is $160,263 million (31 December 2022: $171,640 million). Refer to the Analysis of financial instrument by stage table Page 40 IFRS 9 expected credit loss methodology (audited) Approach for determining expected credit losses Credit loss terminology Component Definition Probability of default (PD) The probability that a counterparty will default, over the next 12 months from the reporting date (stage 1) or over the lifetime of the product (stage 2), incorporating the impact of forward-looking economic assumptions that have an effect on Credit Risk, such as unemployment rates and GDP forecasts. The PD estimates will fluctuate in line with the economic cycle. The lifetime (or term structure) PDs are based on statistical models, calibrated using historical data and adjusted to incorporate forward-looking economic assumptions. Loss given default (LGD) The loss that is expected to arise on default, incorporating the impact of forward-looking economic assumptions where relevant, which represents the difference between the contractual cashflows due and those that the bank expects to receive. The Group estimates LGD based on the history of recovery rates and considers the recovery of any collateral that is integral to the financial asset, taking into account forward-looking economic assumptions where relevant. Exposure at default (EAD) The expected balance sheet exposure at the time of default, taking into account expected changes over the lifetime of the exposure. This incorporates the impact of drawdowns of facilities with limits, repayments of principal and interest, and amortisation. To determine the expected credit loss, these components are multiplied together: PD for the reference period (up to 12 months or lifetime) x LGD x EAD and discounted to the balance sheet date using the effective interest rate as the discount rate. IFRS 9 expected credit loss models have been developed for the Corporate, Commercial and Institutional Banking (CCIB) businesses on a global basis, in line with their respective portfolios. However, for some of the key countries, country-specific models have also been developed. The calibration of forward-looking information is assessed at a country or region level to take into account local macroeconomic conditions. Retail expected credit loss models are country and product specific given the local nature of the CPBB business. For less material retail portfolios, the Group has adopted less sophisticated approaches based on historical roll rates or loss rates: �� For medium-sized retail portfolios, a roll rate model is applied, which uses a matrix that gives the average loan migration rate between delinquency states from period to period. A matrix multiplication is then performed to generate the final PDs by delinquency bucket over different time horizons. �� For smaller retail portfolios, loss rate models are applied. These use an adjusted gross charge-off rate, developed using monthly write-off and recoveries over the preceding 12 months and total outstanding balances. �� While the loss rate models do not incorporate forward-looking information, to the extent that there are significant changes in the macroeconomic forecasts an assessment will be completed on whether an adjustment to the modelled output is required. For a limited number of exposures, proxy parameters or approaches are used where the data is not available to calculate the origination PDs for the purpose of applying the SICR criteria; or for some retail portfolios where a full history of LGD data is not available, estimates based on the loss experience from similar portfolios are used. The use of proxies is monitored and will reduce over time. The following processes are in place to assess the ongoing performance of the models: �� Quarterly model monitoring that uses recent data to compare the differences between model predictions and actual outcomes against approved thresholds. �� Annual independent validations of the performance of material models by Group Model Valuation (GMV); an abridged validation is completed for non-material models. Page 41 Application of lifetime Expected credit loss is estimated based on the period over which the Group is exposed to Credit Risk. For the majority of exposures this equates to the maximum contractual period. For retail credit cards and corporate overdraft facilities, however, the Group does not typically enforce the contractual period, which can be as short as one day. As a result, the period over which the Group is exposed to Credit Risk for these instruments reflects their behavioural life, which incorporates expectations of customer behaviour and the extent to which Credit Risk management actions curtail the period of that exposure. The average behavioural life for retail credit cards is between 3 and 6 years across our footprint markets. The behavioural life for corporate overdraft facilities is 24 months. Composition of credit impairment provisions (audited) The table below summarises the key components of the Group's credit impairment provision balances at 31 December 2023 and 31 December 2022. 31 December 2023 Corporate, Commercial & Institutional Banking $ million Consumer, Private & Business Banking $ million Ventures $ million Central & other items $ million2 Total $ million Modelled ECL provisions (base forecast) 372 553 48 98 1,071 Modelled impact of multiple economic scenarios 20 18 - 6 44 Total ECL provisions before management judgements 392 571 48 104 1,115 Includes: Model performance post model adjustments (3) (28) - - (31) Judgemental post model adjustments - 2 - - 2 Management overlays1 - China commercial real estate 141 - - - 141 - Other - 5 - 17 22 Total modelled provisions 533 578 48 121 1,280 Of which: Stage 1 151 325 15 68 559 Stage 2 318 140 21 49 528 Stage 3 64 113 12 4 193 Stage 3 non-modelled provisions 3,587 646 - 88 4,321 Total credit impairment provisions 4,120 1,224 48 209 5,601 31 December 2022 Corporate, Commercial & Institutional Banking $ million Consumer, Private & Business Banking $ million Ventures $ million Central & other items2 $ million Total $ million Modelled ECL provisions (base forecast) 505 556 12 194 1,267 Modelled impact of multiple economic scenarios 38 6 - 6 50 Total ECL provisions before management judgements 543 562 12 200 1,317 Includes: Model performance post model adjustments (22) (38) - - (60) Judgemental post model adjustments - 44 - - 44 Management overlays1 - China commercial real estate 173 - - - 173 - Other 9 37 - - 46 Total modelled provisions 725 643 12 200 1,580 Of which: Stage 1 194 413 10 34 651 Stage 2 411 118 1 100 630 Stage 3 120 112 1 66 299 Stage 3 non-modelled provisions 3,702 664 - 129 4,495 Total credit impairment provisions 4,427 1,307 12 329 6,075 1 $22 million (31 December 2022: $55 million) is in stage 1, $141 million (31 December 2022: $148 million) in stage 2 and $nil million (31 December 2022: $16 million) in stage 3 2 Includes ECL on cash and balances at central banks, accrued income, assets held for sale and other assets Page 42 Model performance post model adjustments (PMA) As part of normal model monitoring and validation operational processes, where a model's performance breaches the monitoring thresholds or validation standards, an assessment is completed to determine whether a model performance post model adjustment is required to correct for the identified model issue. Model performance post model adjustments are approved by the Group Credit Model Assessment Committee and will be removed when the models are updated to correct for the identified model issue or the estimates return to being within the monitoring thresholds. As at 31 December 2023, model performance post model adjustments have been applied for 5 models out of the total of 172 models. In aggregate, these post model adjustments reduce the Group's impairment provisions by $31 million (2 per cent of modelled provisions) compared with a $60 million decrease at 31 December 2022. The most significant of these relates to an adjustment to decrease ECL for Korea Personal Loans as the IFRS 9 PD model is sensitive to the higher range of interest rates. In addition to these model performance post model adjustments, separate judgemental post model and management adjustments have also been applied as set out on the following pages. 2023 $ million 2022 $ million Model performance PMAs Corporate, Commercial & Institutional Banking (3) (22) Consumer, Private & Business Banking (28) (38) Total model performance PMAs (31) (60) Key assumptions and judgements in determining expected credit loss Incorporation of forward-looking information The evolving economic environment is a key determinant of the ability of a bank's clients to meet their obligations as they fall due. It is a fundamental principle of IFRS 9 that the provisions banks hold against potential future Credit Risk losses should depend, not just on the health of the economy today, but should also take into account potential changes to the economic environment. For example, if a bank were to anticipate a sharp slowdown in the world economy over the coming year, it should hold more provisions today to absorb the credit losses likely to occur in the near future. To capture the effect of changes to the economic environment, the PDs and LGDs used to calculate ECL incorporate forward-looking information in the form of forecasts of the values of economic variables and asset prices that are likely to have an effect on the repayment ability of the Group's clients. The 'base forecast' of the economic variables and asset prices is based on management's view of the five-year outlook, supported by projections from the Group's in-house research team and outputs from a third-party model that project specific economic variables and asset prices. The research team takes consensus views into consideration, and senior management review projections for some core country variables against consensus when forming their view of the outlook. For the period beyond five years, management utilises the in-house research view and third-party model outputs, which allow for a reversion to long-term growth rates or norms. All projections are updated on a quarterly basis. Forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact on non-linearity In the Base Forecast - management's view of the most likely outcome -the pace of growth of the world economy is expected to slow marginally in the near term. Global GDP is forecast to grow by just below 3 per cent in 2024. World GDP growth averaged 3.7 per cent for the 10 years prior to COVID-19 (between 2010 and 2019). The world economy should be able to achieve a soft landing after the most aggressive monetary tightening cycle in years, although risks abound. The lagged impact of aggressive central bank tightening is likely to be felt most acutely in developed economies. Page 43 Lingering inflation and geopolitical developments are risks to the global soft-landing scenario. The ongoing war in Ukraine, conflicts in the Middle East, ongoing US-China tensions, and the November 2024 US election are key sources of geopolitical and political risk; they come against a backdrop of increasing global fragmentation. On the inflation front, it is unclear whether it can slow on a sustained basis. Core inflation has remained sticky in some markets, signalling persistent underlying pressures. Structural factors - including higher fiscal deficits, the cost of the climate transition and recent under-investment in fossil fuels - could keep inflation higher than during the pre-COVID period. Oil prices and geopolitical conflict are also sources of upside inflation risk. While the quarterly Base Forecasts inform the Group's strategic plan, one key requirement of IFRS 9 is that the assessment of provisions should consider multiple future economic environments. For example, the global economy may grow more quickly or more slowly than the Base Forecast, and these variations would have different implications for the provisions that the Group should hold today. As the negative impact of an economic downturn on credit losses tends to be greater than the positive impact of an economic upturn, if the Group sets provisions only on the ECL under the Base Forecast it might maintain a level of provisions that does not appropriately capture the range of potential outcomes. To address the inherent uncertainty in economic forecast, and the property of skewness (or non-linearity), IFRS 9 requires reported ECL to be a probability-weighted ECL, calculated over a range of possible outcomes. To assess the range of possible outcomes the Group simulates a set of 50 scenarios around the Base Forecast, calculates the ECL under each of them and assigns an equal weight of 2 per cent to each scenario outcome. These scenarios are generated by a Monte Carlo simulation, which addresses the challenges of crafting many realistic alternative scenarios in the many countries in which the Group operates by means of a model, which produces these alternative scenarios while considering the degree of historical uncertainty (or volatility) observed from Q1 1990 to Q3 2023 around economic outcomes, the trends in each macroeconomic variable modelled and the correlation in the unexplained movements around these trends. This naturally means that each of the 50 scenarios do not have a specific narrative, although collectively they explore a range of hypothetical alternative outcomes for the global economy, including scenarios that turn out better than expected and scenarios that amplify anticipated stresses. The GDP graphs below illustrate the shape of the Base Forecast for key footprint markets in relation to prior periods' actuals. The long-term growth rates are based on the pace of economic expansion expected for 2030. The tables below provide a summary of the Group's Base Forecast for these markets. The peak/trough amounts show the highest and lowest points within the Base Forecast. China's GDP growth is expected to ease to 4.8 per cent in 2024 from over 5 per cent in 2023. This reflects a continued contraction in the property sector, a negative contribution from foreign trade, and low consumer and business confidence. Similarly, Hong Kong is also facing several headwinds with its GDP growth expected to ease to 2.9 per cent from 3.3 per cent in 2023. These headwinds include a weak property sector and elevated interest rates which will weigh on investment appetite for Hong Kong assets. Limited external demand from key markets will also weigh on exports. Growth in the US is expected to slow on the impact of tighter financial and credit conditions and as the impact of previous interest rate increases by the central bank feed through to the economy. For similar reasons, Eurozone growth is expected to remain weak in 2024. The uncertainty over the ongoing war in Ukraine, conflicts in the Middle East has hit global investor and business confidence. Growth in India is expected to ease to 6 per cent from 6.7 per cent in 2023 due to impact from pre-election uncertainties, tighter lending conditions and global recession concerns. In contrast, GDP growth for Singapore is expected to accelerate to just over 2.5 per cent in 2024 from 0.8 per cent last year. Favourable base effects may boost exports, despite the soft global growth outlook. The global electronics and semiconductor industry is showing signs of bottoming out. Although a strong rebound is not expected, inventory restocking may provide a small boost to Singapore's electronics sector. Korea's economic growth will also benefit from the turnaround in this key sector. GDP growth there is expected to reach 2.3 per cent in 2024 from 1.3 per cent last year. Page 44 2023 year-end forecasts China Hong Kong GDP growth (YoY%) Unemployment % 3-month interest rates % House prices�� (YoY %) GDP growth (YoY %) Unemployment % 3-month interest rates % House prices (YoY %) Base forecast1 2023 5.4 4.1 2.0 (0.8) 3.3 3.0 4.8 (6.8) 2024 4.8 4.1 1.7 3.9 2.9 3.4 4.6 2.1 2025 4.5 4.0 1.8 5.6 2.5 3.4 4.1 3.8 2026 4.3 4.0 2.0 4.5 2.3 3.4 3.5 2.8 2027 4.0 3.9 2.2 4.4 2.4 3.4 2.5 2.7 5-year average2 4.3 4.0 2.1 4.6 2.5 3.4 3.4 2.8 Quarterly peak 5.7 4.1 2.5 7.2 3.8 3.4 5.0 4.6 Quarterly trough 3.8 3.8 1.7 1.5 1.5 3.4 2.3 (1.1) Monte Carlo Low3 0.6 3.3 0.8 (1.5) (3.8) 1.4 0.3 (19.3) High4 7.7 4.4 3.8 12.0 8.2 6.4 8.3 25.5 2023 year-end forecasts Singapore Korea GDP growth (YoY%) Unemployment �� % 3-month interest rates % House prices (YoY%) GDP growth (YoY%) Unemployment % 3-month interest rates % House prices (YoY %) Base forecast1 2023 0.8 2.7 4.1 6.8 1.3 2.7 3.8 (5.8) 2024 2.6 2.8 3.8 (0.2) 2.3 3.3 3.5 3.3 2025 3.1 2.8 3.3 0.4 2.5 3.3 3.1 5.0 2026 3.3 2.8 2.8 2.9 2.4 3.1 3.1 3.5 2027 2.8 2.8 2.4 3.9 2.2 3.0 3.1 2.4 5-year average2 2.9 2.8 2.9 2.2 2.3 3.1 3.1 3.3 Quarterly peak 3.8 2.9 4.1 3.9 2.6 3.5 3.7 5.3 Quarterly trough 1.9 2.8 2.3 (0.7) 2.0 3.0 3.1 (0.3) Monte Carlo Low3 (2.4) 1.7 0.6 (16.2) (2.3) 1.4 0.7 (6.1) High4 8.5 3.8 5.9 19.2 7.0 5.8 6.3 12.5 2023 year-end forecasts India Brent Crude $ pb GDP growth (YoY%) Unemployment % 3month interest rates % House prices (YoY%) Base forecast1 2023 6.7 NA 6.4 5.3 84.2 2024 6.0 NA 5.9 5.3 89.5 2025 6.0 NA 6.3 6.3 90.3 2026 6.4 NA 6.3 6.5 92.8 2027 6.5 NA 6.2 6.4 84.9 5-year average2 6.2 NA 6.2 6.1 88.2 Quarterly peak 9.1 NA 6.3 6.5 93.8 Quarterly trough 4.4 NA 5.8 4.7 82.8 Monte Carlo Low3 2.1 NA 2.7 (0.5) 46.0 High4 10.5 NA 9.9 13.8 137.8 Page 45 2022 year-end forecasts China Hong Kong GDP growth (YoY%) Unemployment % 3-month interest rates % House prices�� (YoY%) GDP growth (YoY%) Unemployment % 3-month interest rates % House prices (YoY%) 5-year average2 5.1 3.9 2.3 3.6 2.3 3.0 2.8 1.7 Quarterly peak 7.9 4.1 3.0 5.0 4.3 3.1 3.6 4.9 Quarterly trough 4.5 3.8 1.4 0.0 0.5 2.9 2.4 (8.4) Monte Carlo Low3 1.1 3.4 0.6 (3.4) (3.8) 1.7 0.5 (22.0) High4 9.6 4.3 4.4 10.0 8.0 4.2 6.1 26.8 2022 year-end forecasts Singapore Korea GDP growth (YoY%) Unemployment�� % 3-month interest rates % House prices (YoY%) GDP growth (YoY%) Unemployment % 3-month interest rates % House prices (YoY%) 5-year average2 2.7 3.0 3.1 2.8 2.2 3.1 3.1 2.1 Quarterly peak 3.7 3.2 4.7 4.7 2.5 3.3 3.9 2.8 Quarterly trough 1.7 3.0 2.4 (2.4) 1.8 3.0 2.7 (0.4) Monte Carlo Low3 (3.4) 2.1 0.8 (15.9) (2.8) 1.1 1.1 (5.4) High4 8.6 4.5 5.6 20.4 7.0 4.9 5.9 10.0 2022 year-end forecasts India Brent crude $ pb GDP growth (YoY%) Unemployment % 3-month interest rates % House prices (YoY%) 5-year average2 6.4 NA 5.6 5.7 106.6 Quarterly peak 7.7 NA 6.3 7.2 118.8 Quarterly trough 3.2 NA 5.3 1.6 88.0 Monte Carlo Low3 1.5 NA 1.9 (1.1) 42.4 High4 12.1 NA 9.5 13.0 204.2 1 Data presented are those used in the calculation of ECL. These may differ slightly to forecasts presented elsewhere in the Annual Report as they are finalised before the period end. 2 5 year averages reported cover Q1 2024 to Q4 2028 for the 2023 annual report. They cover Q1 2023 to Q4 2027 for the numbers reported for the 2022 annual report. 3 Represents the 10th percentile in the range of economic scenarios used to determine non-linearity. 4 Represents the 90th percentile in the range of economic scenarios used to determine non-linearity. 5 A judgemental management adjustment is held in respect of the China commercial real estate sector as discussed. 6 Singapore unemployment rate covers the resident unemployment rate, which refers to citizens and permanent residents. Impact of multiple economic scenarios The final probability-weighted ECL reported by the Group is a simple average of the ECL for each of the 50 scenarios simulated using a Monte Carlo model. The Monte Carlo approach has the advantage that it generates many alternative scenarios that cover our global footprint. The total amount of non-linearity, calculated as the difference between the probability-weighted ECL calculated by the Monte Carlo model and the unweighted base forecast ECL, is $44 million (31 December 2022: $50 million). The CCIB and Central and other items portfolios accounted for $26 million (31 December 2022: $44 million) of the calculated non-linearity with the remaining $18 million (31 December 2022: $6 million) attributable to CPBB portfolios. As the non-linearity calculated for the CPBB portfolios at 31 December 2022 was relatively low, a judgemental post model adjustment of $34 million was applied. Subsequent stand-back analysis was completed during the first half of 2023 to benchmark the ECL non-linearity calculated using the Monte Carlo model, which confirmed that the calculated non-linearity for CPBB portfolios was appropriate and the judgemental post model adjustment was released. Page 46 The impact of multiple economic scenarios on stage 1, stage 2 and stage 3 modelled ECL is set out in the table below, together with the management overlay and other judgemental adjustments. Base forecast $million Multiple economic scenarios1 $million Management overlays and other judgemental adjustments $million Total modelled ECL2 $million Total expected credit loss at 31 December 2023 1,071 44 165 1.280 Total expected credit loss at 31 December 2022 1,267 84 229 1,580 1 Includes judgemental post model adjustment of $nil million (31 December 2022: $34 million) relating to Consumer, Private and Business Banking 2 Total modelled ECL comprises stage 1 and stage 2 balances of $1,105 million (31 December 2022: $1,281 million) and $193 million (31 December 2022: $299 million) of modelled ECL on stage 3 loans 3 Includes ECL on Assets held for sale of $37 million (31 December 2022: $10 million) The average expected credit loss under multiple scenarios is 4 per cent (2022: 7 per cent) higher than the expected credit loss calculated using only the most likely scenario (the Base Forecast). Portfolios that are more sensitive to non-linearity include those with greater leverage and/or a longer tenor, such as Project and Shipping Finance portfolios. Other portfolios display minimal non-linearity owing to limited responsiveness to macroeconomic impacts for structural reasons, such as significant collateralisation as with the CPBB mortgage portfolios. Judgemental adjustments As at 31 December 2023, the Group held judgemental adjustments for ECL as set out in the table below. All of the judgemental adjustments have been determined after taking account of the model performance post model adjustments reported. They are reassessed quarterly and are reviewed and approved by the IFRS 9 Impairment Committee and will be released when no longer relevant. 31 December 2023 Corporate, Commercial & Institutional Banking $ million Consumer, Private & Business Banking Central & other $ million Total $ million Mortgages $ million Credit Cards $ million Other $ million Total $ million Judgemental post model adjustments - - 1 1 2 - 2 Judgemental management overlays: - China CRE 141 - - - - - 141 - Other - 1 2 2 5 17 22 Total judgemental adjustments 141 1 3 3 7 17 165 Judgemental adjustments by stage: Stage 1 17 1 3 6 10 - 27 Stage 2 124 - - (3) (3) 17 138 Stage 3 - - - - - - 31 December 2022 Corporate, Commercial & Institutional Banking $ million Consumer, Private & Business Banking Central & other $million Total $million Mortgages $ million Credit Cards $ million Other $ million Total $million Judgemental post model adjustments - 3 11 30 44 - 44 Judgemental management overlays: - China CRE 173 - - - - - 173 - Other 9 2 5 30 37 - 46 Total judgemental adjustments 182 5 16 60 81 - 263 Judgemental adjustments by stage: Stage 1 37 1 5 39 45 - 82 Stage 2 136 3 9 17 29 - 165 Stage 3 9 1 2 4 7 - 16 Judgemental post model adjustments As at 31 December 2023, judgemental post model adjustments to increase ECL by a net $2 million (31 December 2022: $44 million increase) have been applied to certain CPBB models, primarily to adjust for temporary factors impacting modelled outputs. These will be released when these factors normalise. At 31 December 2022, $34 million of the increase in ECL related to multiple economic scenarios, which was fully released in the first half of 2023 (see 'Impact of multiple economic scenarios'). Page 47 Judgemental management overlays China CRE The real estate market in China has now been in a downturn since late 2021 as evidenced by continued decline in sales, and investments in the sector. Liquidity issues experienced by Chinese property developers continued into 2023 with more developers defaulting on their obligations both offshore and onshore. During 2023, authorities on the mainland have introduced a slew of policies to help revive the sector and restore buying sentiments. This has helped stabilise the market to an extent in some cities, but demand and home prices remain muted overall. Continued policy relaxations, including those related to house purchase restrictions, completion support for eligible projects from onshore financial institutions, relaxation in mortgage rates, and further support for affordable housing, are key for reversing the continued decline in sales and investments and ensuring a stable outlook for 2024. The Group's loans and advances to China CRE clients was $2.4 billion at 31 December 2023 (31 December 2022: $3.2 billion). Client level analysis continues to be done, with clients being placed on purely precautionary or non-purely precautionary early alert, where appropriate, for closer monitoring. Given the evolving nature of the risks in the China CRE sector, a management overlay of $141 million (31 December 2022: $173 million) has been taken by estimating the impact of further deterioration to exposures in this sector. The decrease from 31 December 2022 was primarily driven by repayments and movement of some of the exposures to Stage 3. Other Overlays of $5 million (31 December 2022: $16 million) have also been applied in CPBB to capture macroeconomic environment challenges caused by sovereign defaults or heightened sovereign risk, the impact of which is not fully captured in the modelled outcomes. An overlay of $17 million (2022: nil) was applied in Central & Other due to a temporary market dislocation in the Africa and Middle East region. The remaining COVID-19 overlay in CPBB of $21 million that was held as at 31 December 2022 has been fully released in 2023. The stage 3 overlay in CCIB of $9 million that was held as at 31 December 2022 following the Sri Lanka Sovereign default was also fully released in 2023. Stage 3 assets Credit-impaired assets managed by Stressed Asset Group (SAG) incorporate forward-looking economic assumptions in respect of the recovery outcomes identified and are assigned individual probability weightings per IFRS 9. These assumptions are not based on a Monte Carlo simulation but are informed by the Base Forecast. Sensitivity of expected credit loss calculation to macroeconomic variables The ECL calculation relies on multiple variables and is inherently non-linear and portfolio-dependent, which implies that no single analysis can fully demonstrate the sensitivity of the ECL to changes in the macroeconomic variables. The Group has conducted a series of analyses with the aim of identifying the macroeconomic variables which might have the greatest impact on the overall ECL. These encompassed single variable and multi-variable exercises, using simple up/ down variation and extracts from actual calculation data, as well as bespoke scenario design assessments. The primary conclusion of these exercises is that no individual macroeconomic variable is materially influential. The Group believes this is plausible as the number of variables used in the ECL calculation is large. This does not mean that macroeconomic variables are uninfluential; rather, that the Group believes that consideration of macroeconomics should involve whole scenarios, as this aligns with the multi-variable nature of the calculation. The Group faces downside risks in the operating environment related to the uncertainties surrounding the macroeconomic outlook. To explore this, a sensitivity analysis of ECL was undertaken to explore the effect of slower economic recoveries across the Group's footprint markets. Two downside scenarios were considered in particular to explore the current uncertainties over commodity prices. The first scenario, Global Stagflation, explores a temporary spike (relative to base) in commodity prices, inflation and interest rates in the near term from the ongoing war in Ukraine and conflicts in the Middle East. The second more severe scenario is based on the Bank of England's most recent Annual Cyclical Scenario (ACS), which explores a persistent rise in commodity prices, inflation and interest rates. Page 48 Baseline Global Stagflation ACS Five year average Peak/Trough Five year average Peak/Trough Five year average Peak/Trough China GDP 4.3 5.7 / 3.8 3.7 6.2 / (0.8) 2.2 3.9 / (3.4) China unemployment 4.0 4.1 / 3.8 5.3 6.4 / 3.8 5.3 5.7 / 4.6 China property prices 4.6 7.2 / 1.5 4.4 15.9 / (17.5) (5.5) 9.2 / (16.3) Hong Kong GDP 2.5 3.8 / 1.5 1.8 5.6 / (1.4) (0.6) 2.9 / (9.4) Hong Kong unemployment 3.4 3.4 / 3.4 5.4 7.4 / 3.4 6.3 7.5 / 3.9 Hong Kong property prices 2.8 4.6 / (1.1) 1.6 9.4 / (3.8) (9.7) 6.2 / (22.5) US GDP 1.7 2.3 / 0.8 1.4 2.7 / (1.3) 0.1 1.5 / (4.8) Singapore GDP 2.9 3.8 / 1.9 2.7 5.0 / (1.6) 1.2 5.9 / (8.7) India GDP 6.2 9.1 / 4.4 4.9 6.6 / 0.6 4.2 7.3 / (0.7) Crude oil 88.2 93.8 / 82.8 95.3 152.9 / 82.8 118 147.9 / 83.6 Period covered from Q1 2024 to Q4 2028 Base (GDP, YoY%) Global Stagflation Difference from Base 2024 2025 2026 2027 2028 2024 2025 2026 2027 2028 2024 2025 2026 2027 2028 China 4.8 4.5 4.3 4.0 3.8 1.5 1.6 4.8 5.7 4.8 (3.3) (2.9) 0.5 1.7 1.0 Hong Kong 2.9 2.5 2.3 2.4 2.2 0.9 (1.0) 1.7 5.0 2.4 (2.0) (3.5) (0.6) 2.5 0.2 US 1.4 1.5 1.8 1.9 1.9 0.0 0.2 1.8 2.6 2.4 (1.5) (1.3) 0.0 0.7 0.5 Singapore 2.6 3.1 3.3 2.8 2.6 0.3 0.6 3.7 4.8 4.0 (2.3) (2.4) 0.4 2.0 1.3 India 6.0 5.5 6.5 6.4 6.6 2.6 3.9 5.6 6.5 5.7 (3.4) (1.6) (0.8) 0.1 (0.9) Each year is from Q1 to Q4. For example 2024 is from Q1 2024 to Q4 2024. Base (GDP, YoY%) ACS Difference from Base 2024 2025 2026 2027 2028 2024 2025 2026 2027 2028 2024 2025 2026 2027 2028 China 4.8 4.5 4.3 4.0 3.8 (0.9) 1.3 3.7 3.4 3.4 (5.6) (3.2) (0.5) (0.6) (0.4) Hong Kong 2.9 2.5 2.3 2.4 2.2 (5.3) (3.5) 2.6 1.8 1.5 (8.1) (6.0) 0.3 (0.6) (0.7) US 1.4 1.5 1.8 1.9 1.9 (1.7) (1.5) 1.0 1.3 1.3 (3.2) (2.9) (0.8) (0.6) (0.6) Singapore 2.6 3.1 3.3 2.8 2.6 (3.8) 0.0 4.2 2.9 2.7 (6.4) (3.1) 0.9 0.1 0.1 India 6.0 5.5 6.5 6.4 6.6 2.8 2.2 4.9 5.3 5.5 (3.2) (3.3) (1.6) (1.1) (1.2) Each year is from Q1 to Q4. For example 2024 is from Q1 2024 to Q4 2024 The total modelled stage 1 and 2 ECL provisions (including both on and off-balance sheet instruments) would be approximately $153 million higher under the Global Stagflation scenario, and $489 million higher under the ACS scenario than the baseline ECL provisions (which excluded the impact of multiple economic scenarios and management overlays which may already capture some of the risks in these scenarios). Stage 2 exposures as a proportion of stage 1 and 2 exposures would increase from 3.7 per cent in the base case to 4.1 per cent and 6.5 per cent respectively under the Global Stagflation and ACS scenarios. This includes the impact of exposures transferring to stage 2 from stage 1 but does not consider an increase in stage 3 defaults. Under both scenarios, the majority of the increase in ECL in CCIB came from the main corporate and CRE portfolios. For the main corporate portfolios, ECL would increase by $20 million and $79 million for the Global stagflation and ACS scenarios respectively and the proportion of stage 2 exposures would increase from 5.5 per cent in the base case to 5.9 per cent and 8.2 per cent respectively. For the CPBB portfolios, most of the increase in ECL came from the unsecured retail portfolios, with the Taiwan and Korea Personal Loans impacted. Under the Global Stagflation and ACS scenarios, Credit card ECL would increase by $28 million and $66 million respectively, largely in the Singapore and Hong Kong portfolios and the proportion of stage 2 credit card exposures would increase from 1.5 per cent in the base case to 2.1 per cent and 3.3 per cent for each scenario respectively, with the Singapore portfolio most impacted. Mortgages ECL would increase by $1 million and $45 million for each scenario respectively, with portfolios in Hong Kong and Korea most impacted and the proportion of stage 2 mortgages would increase from 1.2 per cent in the base case to 1.7 per cent and 14 per cent respectively, with the Hong Kong and Singapore portfolios most impacted. There was no material change in modelled stage 3 provisions as these primarily relate to unsecured CPBB exposures for which the LGD is not sensitive to changes in the macroeconomic forecasts. There is also no material change for non-modelled stage 3 exposures as these are more sensitive to client specific factors than to alternative macroeconomic scenarios. Page 49 The actual outcome of any scenario may be materially different due to, among other factors, the effect of management actions to mitigate potential increases in risk and changes in the underlying portfolio. Gross as reported1 $ million ECL as reported2 $ million ECL Base case $ million ECL Global Stagflation $ million ECL ACS $ million Stage 1 modelled Corporate, Commercial & Institutional Banking 337,189 134 124 136 164 Consumer, Private & Business Banking 190,999 315 306 355 455 Ventures 1,015 15 15 15 15 Central & Other items 194,673 35 32 40 50 Total stage 1 excluding management judgements 723,876 499 477 546 684 Stage 2 modelled Corporate, Commercial & Institutional Banking 16,873 194 184 234 333 Consumer, Private & Business Banking 2,472 143 134 167 263 Ventures 54 21 21 21 21 Central & Other items 2,869 21 18 19 22 Total stage 2 excluding management judgements 22,268 379 357 441 639 Total Stage 1 & 2 modelled Corporate, Commercial & Institutional Banking 354.062 328 308 370 497 Consumer, Private & Business Banking 193,471 458 440 522 718 Ventures 1,069 36 36 36 36 Central & Other items 197,542 56 50 59 72 Total excluding management judgements 746,144 878 834 987 1,323 Stage 3 exposures excluding other assets 8,144 4,499 Other financial assets3 111,478 59 ECL from management judgements 165 Total financial assets reported at 31 December 2023 865,766 5,601 1 Gross balances includes both on- and off- balance sheet instruments; allocation between stage 1 and 2 will differ by scenario 2 Includes ECL for both on- and off- balance sheet instruments 3 Includes cash and balances at central banks, Accrued income, Other financial assets; and Assets held for sale Significant increase in credit risk (SICR) Quantitative criteria SICR is assessed by comparing the risk of default at the reporting date to the risk of default at origination. Whether a change in the risk of default is significant or not is assessed using quantitative and qualitative criteria. These criteria have been separately defined for each business and where meaningful are consistently applied across business lines. Assets are considered to have experienced SICR if they have breached both relative and absolute thresholds for the change in the average annualised IFRS 9 lifetime probability of default (IFRS 9 PD) over the residual term of the exposure. The absolute measure of increase in credit risk is used to capture instances where the IFRS 9 PDs on exposures are relatively low at initial recognition as these may increase by several multiples without representing a significant increase in credit risk. Where IFRS 9 PDs are relatively high at initial recognition, a relative measure is more appropriate in assessing whether there is a significant increase in credit risk, as the IFRS 9 PDs increase more quickly. The SICR thresholds have been calibrated based on the following principles: �� Stability - The thresholds are set to achieve a stable stage 2 population at a portfolio level, trying to minimise the number of accounts moving back and forth between stage 1 and stage 2 in a short period of time �� Accuracy - The thresholds are set such that there is a materially higher propensity for stage 2 exposures to eventually default than is the case for stage 1 exposures �� Dependency from backstops - The thresholds are stringent enough such that a high proportion of accounts transfer to stage 2 due to movements in forward-looking IFRS 9 PDs rather than relying on backward-looking backstops such as arrears Page 50 �� Relationship with business and product risk profiles - the thresholds reflect the relative risk differences between different products, and are aligned to business processes For CCIB clients the quantitative thresholds are a relative 100 per cent increase in IFRS 9 PD and an absolute change in IFRS 9 PD of between 50 and 100 bps. For Consumer and Business Banking clients, portfolio specific quantitative thresholds in Hong Kong, Singapore, Malaysia, UAE and Taiwan are applied for credit cards and one personal loan portfolio. The thresholds include relative and absolute increases in IFRS 9 PD with average lifetime IFRS 9 PD cut-offs for those exposures that are within a range of customer utilisation limits (for credit cards) and remaining tenor (for personal loans) and differentiate between exposures that are current and those that are 1 to 29 days past due. The range of thresholds applied are: Portfolio Relative IFRS 9 PD increase (%) Absolute IFRS 9 PD increase (%) Customer utilisation (%) Remaining tenor (%) Average IFRS 9 PD (lifetime) Credit cards - Current 50% - 150% 3.4% - 9.3% 15% - 90% - 4.15% - 11.6% Credit cards - 1-29 days past due 100% - 210% 3.5% - 6.1% 25% - 67% - 1.5% - 18.5% Personal loans - Current - 3.5% - 70% 2.8% Personal loan - 1-29 days past due 25% 3% - 75% - For all other Consumer and Business Banking portfolios, the quantitative SICR thresholds applied are a relative threshold of 100 per cent increase in IFRS 9 PD and an absolute change in IFRS 9 PD of between 100 and 350 bps depending on the product. Certain countries have a higher absolute threshold reflecting the lower default rate within their personal loan portfolios compared with the Group's other personal loan portfolios. Private Banking clients are assessed qualitatively, based on a delinquency measure relating to collateral top-ups or sell-downs. Qualitative criteria Qualitative factors that indicate that there has been a significant increase in credit risk include processes linked to current risk management, such as placing loans on non-purely precautionary early alert. Backstop Across all portfolios, accounts that are 30 or more days past due (DPD) on contractual payments of principal and/or interest that have not been captured by the criteria above are considered to have experienced a significant increase in credit risk. Expert credit judgement may be applied in assessing SICR to the extent that certain risks may not have been captured by the models or through the above criteria. Such instances are expected to be rare, for example due to events and material uncertainties arising close to the reporting date. CCIB clients Quantitative criteria Exposures are assessed based on both the absolute and the relative movement in the IFRS 9 PD from origination to the reporting date as described above. To account for the fact that the mapping between internal credit grades (used in the origination process) and IFRS 9 PDs is non-linear (e.g. a one-notch downgrade in the investment grade universe results in a much smaller IFRS 9 PD increase than in the sub-investment grade universe), the absolute thresholds have been differentiated by credit quality at origination, as measured by internal credit grades being investment grade or sub-investment grade. Qualitative criteria All assets of clients that have been placed on early alert (for non-purely precautionary reasons) are deemed to have experienced a significant increase in credit risk. An account is placed on non-purely precautionary early alert if it exhibits risk or potential weaknesses of a material nature requiring closer monitoring, supervision or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded. Indicators could include a rapid erosion of position within the industry, concerns over management's ability to manage operations, weak/deteriorating operating results, liquidity strain and overdue balances, among other factors. Page 51 All client assets that have been assigned a CG12 rating, equivalent to 'Higher risk', are deemed to have experienced a significant increase in credit risk. Accounts rated CG12 are primarily managed by relationship managers in the CCIB unit with support from SAG for certain accounts. All CCIB clients are placed in CG12 when they are 30 DPD unless they are granted a waiver through a strict governance process. Consumer and Business Banking clients Quantitative criteria Material portfolios (defined as a combination of country and product, for example Hong Kong mortgages, Singapore credit cards, Taiwan personal loans) for which a statistical model has been built, are assessed based on both the absolute and relative movement in the IFRS 9 PD from origination to the reporting date as described previously. For these portfolios, the original lifetime IFRS 9 PD term structure is determined based on the original Application Score or Risk Segment of the client. Qualitative and backstop criteria Accounts that are 30 DPD that have not been captured by the quantitative criteria are considered to have experienced a significant increase in credit risk. For less material portfolios, which are modelled based on a roll-rate or loss-rate approach, SICR is primarily assessed through the 30 DPD trigger. In addition, SICR is also assessed for where specific risk elevation events have occurred in a market that are not yet reflected in modelled outcomes or in other metrics. This is applied collectively either to impacted specific products/customer cohorts or across the overall consumer banking portfolio in the affected market. Private Banking clients For Private Banking clients, SICR is assessed by referencing the nature and the level of collateral against which credit is extended (known as 'Classes of Risk'). Qualitative criteria For all Private Banking classes, in line with risk management practice, an increase in credit risk is deemed to have occurred where margining or loan-to-value covenants have been breached. For Class I assets (lending against diversified liquid collateral), if these margining requirements have not been met within 30 days of a trigger, a significant increase in credit risk is assumed to have occurred. For Class I and Class III assets (real-estate lending), a significant increase in credit risk is assumed to have occurred where the bank is unable to 'sell down' the applicable assets to meet revised collateral requirements within five days of a trigger. Class II assets are typically unsecured or partially secured, or secured against illiquid collateral such as shares in private companies. Significant credit deterioration of these assets is deemed to have occurred when any early alert trigger has been breached. Debt securities Quantitative criteria For debt securities originated before 1 January 2018, the bank is utilising the low Credit Risk simplified approach, where debt securities with an internal credit rating mapped to an investment grade equivalent are allocated to stage 1 and all other debt securities are allocated to stage 2. Debt securities originated after 1 January 2018 are assessed based on the absolute and relative movements in IFRS 9 PD from origination to the reporting date using the same thresholds as for Corporate, Commercial and Institutional Banking clients. Qualitative criteria Debt securities utilise the same qualitative criteria as the Corporate, Commercial and Institutional Banking client segments, including being placed on non-purely precautionary early alert or being classified as CG12. Assessment of credit-impaired financial assets Consumer and Business Banking clients The core components in determining credit-impaired expected credit loss provisions are the value of gross charge-off and recoveries. Gross charge-off and/or loss provisions are recognised when it is established that the account is unlikely to pay through the normal process. Recovery of unsecured debt post credit impairment is recognised based on actual cash collected, either directly from clients or through the sale of defaulted loans to third-party institutions. Release of credit impairment provisions for secured loans is recognised if the loan outstanding is paid in full (release of full provision), or the provision is higher than the loan outstanding (release of the excess provision). Page 52 CCIB and Private Banking clients Credit-impaired accounts are managed by the Group's specialist recovery unit, Stressed Asset Group (SAG), which is independent from its main businesses. Where a portion of exposure is considered not recoverable, a stage 3 credit impairment provision is raised. This stage 3 provision is the difference between the loan-carrying amount and the probability-weighted present value of estimated future cash flows, reflecting a range of scenarios (typically the Upside, Downside and Likely recovery outcomes). Where the exposure is secured by collateral, the values used will incorporate the impact of forward-looking economic information on the value recoverable collateral and time to realise the same. The individual circumstances of each client are considered when SAR estimates future cashflows and the timing of future recoveries which involves significant judgement. All available sources, such as cashflow arising from operations, selling assets or subsidiaries, realising collateral or payments under guarantees, are considered. In any decision relating to the raising of provisions, the Group attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Write-offs Where it is considered that there is no realistic prospect of recovering a portion of an exposure against which an impairment provision has been raised, that amount will be written off. Governance and application of expert credit judgement in respect of expected credit losses The Group's Credit Policy and Standards framework details the requirements for continuous monitoring to identify any changes in credit quality and resultant ratings, as well as ensuring a consistent approach to monitoring, managing and mitigating credit risks. The framework aligns with the governance of ECL estimation through the early recognition of significant deteriorations in ratings which drive stage 2 and 3 ECL. The models used in determining expected credit losses are reviewed and approved by the Group Credit Model Assessment Committee (CMAC), which is appointed by the Model Risk Committee. CMAC has the responsibility to assess and approve the use of models and to review all IFRS 9 interpretations related to models. CMAC also provides oversight on operational matters related to model development, performance monitoring and model validation activities, including standards and regulatory matters. Prior to submission to CMAC for approval, the models are validated by GMV, a function which is independent of the business and the model developers. GMV's analysis comprises review of model documentation, model design and methodology, data validation, review of the model development and calibration process, out-of-sample performance testing, and assessment of compliance review against IFRS 9 rules and internal standards. A quarterly model monitoring process is in place that uses recent data to compare the differences between model predictions and actual outcomes against approved thresholds. Where a model's performance breaches the monitoring thresholds, an assessment of whether a PMA is required to correct for the identified model issue is completed. Key inputs into the calculation and resulting expected credit loss provisions are subject to review and approval by the IFRS 9 Impairment Committee (IIC) which is appointed by the Group Risk Committee. The IIC consists of senior representatives from Risk, Finance, and Group Economic Research. It meets at least twice every quarter; once before the models are run to approve key inputs into the calculation, and once after the models are run to approve the expected credit loss provisions and any judgemental overrides that may be necessary. The IFRS 9 Impairment Committee: �� Oversees the appropriateness of all Business Model Assessment and Solely Payments of Principal and Interest (SPPI) tests �� Reviews and approves expected credit loss for financial assets classified as stages 1, 2 and 3 for each financial reporting period �� Reviews and approves stage allocation rules and thresholds �� Approves material adjustments in relation to expected credit loss for fair value through other comprehensive income (FVOCI) and amortised cost financial assets �� Reviews, challenges and approves base macroeconomic forecasts and the multiple macroeconomic scenarios approach that are utilised in the forward-looking expected credit loss calculations Page 53 The IFRS 9 Impairment Committee is supported by an Expert Panel which also reviews and challenges the base case projections and multiple macroeconomic scenarios. The Expert Panel consists of members of Enterprise Risk Management (which includes the Scenario Design team), Finance, Group Economic Research and country representatives of major jurisdictions. PMAs may be applied to account for identified weaknesses in model estimates. The processes for identifying the need for, calculating the level of, and approving PMAs are prescribed in the Credit Risk IFRS 9 ECL Model Family Standards, which are approved by the Global Head, Model Risk Management. PMA calculation methodologies are reviewed by GMV and submitted to CMAC as the model approver or the IIC. All PMAs have a remediation plan to fix the identified model weakness, and these plans are reported to and tracked at CMAC. In addition, Risk Event Overlays account for events that are sudden and therefore not captured in the Base Case Forecast or the resulting ECL calculated by the models. All Risk Event Overlays must be approved by the IIC having considered the nature of the event, why the risk is not captured in the model, and the basis on which the quantum of the overlay has been calculated. Risk Event Overlays are subject to quarterly review and re-approval by the IIC and will be released when the risks are no longer relevant. Traded Risk Traded Risk is the potential for loss resulting from activities undertaken by the Group in financial markets. Under the Enterprise Risk Management Framework, the Traded Risk Framework brings together Market Risk, Counterparty Credit Risk and Algorithmic Trading. Traded Risk Management is the core risk management function supporting market-facing businesses, predominantly Financial Markets and Treasury Markets. Market Risk (audited) Market Risk is the potential for fair value loss due to adverse moves in financial markets. The Group's exposure to Market Risk arises predominantly from the following sources: �� Trading book: - The Group provides clients with access to financial markets, facilitation of which entails the Group taking moderate Market Risk positions. All trading teams support client activity. There are no proprietary trading teams. Hence, income earned from Market Risk-related activities is primarily driven by the volume of client activity rather than risk-taking �� Non-trading book: - The Treasury Markets desk is required to hold a liquid assets buffer, much of which is held in high-quality marketable debt securities - The Group has capital invested and related income streams denominated in currencies other than US dollars. To the extent that these income streams are not hedged, the Group is subject to Structural Foreign Exchange Risk which is reflected in reserves A summary of our current policies and practices regarding Market Risk management is provided in the Principal Risks section. The primary categories of Market Risk for the Group are: �� Interest Rate Risk: arising from changes in yield curves and implied volatilities on interest rate options �� Foreign Exchange Rate Risk: arising from changes in currency exchange rates and implied volatilities on foreign exchange options �� Commodity Risk: arising from changes in commodity prices and implied volatilities on commodity options; covering energy, precious metals, base metals and agriculture �� Credit Spread Risk: arising from changes in the price of debt instruments and credit-linked derivatives, driven by factors other than the level of risk-free interest rates �� Equity Risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on related options Page 54 Market risk movements (audited) Value at Risk (VaR) allows the Group to manage Market Risk across the trading book and most of the fair valued non-trading books. The average level of total trading and non-trading VaR in 2023 was $53.3 million, 1.5 per cent higher than 2022 ($52.5 million). The year end level of total trading and non-trading VaR in 2023 was $44.5 million, 20.2 per cent lower than 2022 ($55.8 million), due to a reduction in non-trading positions. For the trading book, the average level of VaR in 2023 was $21.5 million, 19.4 per cent higher than 2022 ($18.0 million). Trading activities have remained relatively unchanged, and client driven. Daily value at risk (VaR at 97.5%, one day) (audited) Trading1 and non-trading2 2023 2022 Average $million High $million Low $million Year End $million Average $million High $million Low $million Year End $million Interest Rate Risk 39.5 54.1 23.2 30.5 27.8 42.1 21.0 24.7 Credit Spread Risk 33.8 48.0 25.0 31.7 34.2 47.1 20.3 32.9 Foreign Exchange Risk 7.0 12.2 4.2 7.4 6.5 10.3 4.8 6.8 Commodity Risk 5.8 9.7 3.7 4.3 7.0 11.9 3.5 8.3 Equity Risk 0.1 0.4 - - 0.1 0.2 - 0.1 Diversification effect (32.9) N/A N/A (29.4) (23.1) N/A N/A (17.0) Total 53.3 65.5 44.2 44.5 52.5 64.1 40.3 55.8 Trading1 2023 2022 Average $million High $million Low $million Year End $million Average $million High $million Low $million Year End $million Interest Rate Risk 13.1 20.4 7.7 11.6 8.1 11.7 5.3 9.0 Credit Spread Risk 9.4 12.4 7.4 9.4 9.5 14.9 5.0 8.7 Foreign Exchange Risk 7.0 12.2 4.2 7.4 6.5 10.3 4.8 6.8 Commodity Risk 5.8 9.7 3.7 4.4 7.0 11.9 3.5 8.3 Equity Risk - - - - - - - - Diversification effect (13.8) N/A N/A (11.5) (13.1) N/A N/A (11.0) Total 21.5 30.6 14.7 21.3 18.0 24.4 12.6 21.8 Non-trading2 2023 2022 Average $million High $million Low $million Year End $million Average $million High $million Low $million Year End $million Interest Rate Risk 34.2 43.6 19.7 23.9 26.3 44.5 18.1 23.5 Credit Spread Risk 28.3 40.1 21.5 24.4 28.8 37.8 18.7 29.2 Equity Risk 0.1 0.4 - - 0.1 0.2 - 0.1 Diversification effect (18.6) N/A N/A (12.7) (10.6) N/A N/A (11.5) Total 44.0 53.4 32.0 35.6 44.6 52.5 35.1 41.3 Page 55 The following table sets out how trading and non-trading VaR is distributed across the Group's businesses: 2023 2022 Average $million High $million Low $million Year End $million Average $million High $million Low $million Year End $million Trading1 and non-trading2 53.3 65.5 44.2 44.5 52.5 64.1 40.3 55.8 Trading1 Macro Trading3 13.8 20.2 9.2 15.4 12.8 17.4 10.2 16.9 Global Credit 12.8 18.2 8.5 10.1 10.1 15.7 4.2 8.4 XVA 4.8 7.0 3.4 4.5 3.9 5.0 2.4 4.6 Diversification effect (9.9) N/A N/A (8.7) (8.8) N/A N/A (8.1) Total 21.5 30.6 14.7 21.3 18 24.4 12.6 21.8 Non-trading2 Treasury4 43.4 50.2 31.1 34.9 38.7 47.5 29.7 40.3 Global Credit 3.9 13.6 2.0 4.0 3.4 5.0 2.3 3.5 Listed Private Equity 0.1 0.4 0.0 0.0 0.1 0.2 - 0.1 Diversification effect (3.4) N/A N/A (3.3) 2.4 N/A N/A (2.6) Total 44.0 53.4 32.0 35.6 44.6 52.5 35.1 41.3 1 The trading book for Market Risk is defined in accordance with the UK onshored Capital Requirements Regulation Part 3 Title I Chapter 3, which restricts the positions permitted in the trading book 2 The non-trading book VaR does not include syndicated loans 3 Macro Trading comprises the Rates, FX and Commodities businesses 4 Treasury comprises Treasury Markets and Treasury Capital Management businesses Risks not in VaR In 2023, the main market risks not reflected in VaR were: �� Basis risks for which the historical market price data is limited and is therefore proxied, giving rise to potential proxy basis risk that is not captured in VaR �� Potential depeg risk from currencies currently pegged or managed, as the historical one-year VaR observation period does not reflect the possibility of a change in the currency regime, such as sudden depegging �� Volatility skew risk due to movements in options volatilities at different strikes while VaR reflects only movements in at-the-money volatilities �� Deal contingent risk where a client is granted the right to cancel a hedging trade contingent on conditions not being met within a time window Additional capital is set aside to cover such 'risks not in VaR'. Backtesting In 2023, there were five regulatory backtesting negative exceptions at Group level (in 2022 there were eight regulatory backtesting negative exceptions at Group level). Group exceptions occurred on: �� 16 March: After the US authorities put Silicon Valley Bank and Signature Bank into administration there were strong market reactions, including notable interest rate yield rises on 16 March �� 1 June: After announcement of planned potential economic reforms in Nigeria, there were sharp movements in the offshore Naira FX market in anticipation of Naira devaluation �� 12 June: After the governor of the Central Bank of Nigeria was removed there were further sharp movements in the offshore Naira FX market �� 1 November and 3 November: After the Nigerian government announced on 30 October that it plans to target an exchange rate of 750 Naira per dollar, the onshore spot market became more volatile on low volumes. The VaR model is currently being enhanced to increase its responsiveness to abrupt upturns in market volatility. There have been five Group exceptions in the previous 250 business days. This is within the 'amber zone' applied internationally to internal models by bank supervisors (Basel Committee on Banking Supervision, Supervisory framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements, January 1996). Page 56 The graph below illustrates the performance of the VaR model used in capital calculations. It compares the 99 percentile profit and loss confidence level given by the VaR model with the hypothetical profit and loss of each day given the actual market movement without taking into account any intra-day trading activity. Trading loss days 2023 2022 Number of loss days reported for Financial Markets trading book total product income1 16 15 1 Includes credit valuation adjustment (CVA) and funding valuation adjustment (FVA), and excludes Treasury Markets business (non-trading), periodic valuation changes for Capital Markets, expected loss provisions, overnight indexed swap (OIS) discounting and accounting adjustments such as debit valuation adjustments Average daily income earned from Market Risk-related activities1 (audited) The average level of total trading daily income in 2023 was $12 million, 14 per cent lower than 2022 ($14 million). The decrease is largely attributable to lower income in Commodities in 2023 on the back of lower volatility and falling crude oil prices. Additionally, the decrease in FX business was on the back of lower cross-border flows and muted FX volatility. The average level of total non-trading daily income in 2023 was -$0.7 million, 217 per cent lower than 2022 ($0.6 million). The decrease is primarily attributable to lower income from the Credit Solutions business. Trading 2023 $million 2022 $million Interest Rate Risk 4.5 5.0 Credit Spread Risk 1.2 1.4 Foreign Exchange Risk 5.5 6.3 Commodity Risk 0.8 1.3 Equity Risk - - Total 12.0 14.0 Non-trading $million $million Interest Rate Risk (0.1) - Credit Spread Risk (0.7) 0.6 Equity Risk 0.1 - Total (0.7) 0.6 1 Reflects total product income which is the sum of client income and own account income. Includes elements of trading income, interest income and non funded income which are generated from Market Risk-related activities. Rates, XVA and Treasury income are included under Interest Rate Risk whilst Credit Trading income is included under Credit Spread Risk Structural foreign exchange exposures The table below sets out the principal structural foreign exchange exposures (net of investment hedges) of the Group. 2023 $million 20221 $million Hong Kong dollar 4,662 3,333 Renminbi 3,523 3,497 Indian rupee 3,309 4,396 Singapore dollar 2,415 1,888 Korean won 2,114 2,409 Malaysian ringgit 1,540 1,571 Taiwanese dollar 1,222 1,055 Euro 1,125 893 Bangladeshi Taka 1,007 832 Thai baht 782 782 UAE dirham 709 670 Pakistani rupee 306 352 Indonesian rupiah 293 261 Other 3,206 3,233 26,213 25,172 1 Prior year has been represented to provide granular currency details Page 57 As at 31 December 2023, the Group had taken net investment hedges using derivative financial instruments to partly cover its exposure to the Hong Kong dollar of $5,603 million (31 December 2022: $6,236 million), Korean won of $2,884 million (31 December 2022: $3,330 million), Indian rupee of $1,809 million (31 December 2022: $620 million), Renminbi of $1,516 million (31 December 2022: $1,608 million), UAE dirham of $1,470 million (31 December 2022: $1,334 million), Singapore dollar of $1,047 million (31 December 2022: $1,608 million), Taiwanese dollar of $1,025 million (31 December 2022: $1,075 million) and South African rand of $64 million (31 December 2022: $nil million). An analysis has been performed on these exposures to assess the impact of a 1 per cent fall in the US dollar exchange rates, adjusted to incorporate the impacts of correlations of these currencies to the US dollar. The impact on the positions above would be an increase of $260 million (31 December 2022: $421 million). Changes in the valuation of these positions are taken to reserves. For analysis of the Group's capital position and requirements, refer to the Capital Review. Counterparty Credit Risk Counterparty Credit Risk is the potential for loss in the event of the default of a derivative counterparty, after taking into account the value of eligible collaterals and risk mitigation techniques. The Group's counterparty credit exposures are included in the Credit Risk section. Derivative financial instruments Credit Risk mitigation The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions. In addition, the Group enters into credit support annexes (CSAs) with counterparties where collateral is deemed a necessary or desirable mitigant to the exposure. Cash collateral includes collateral called under a variation margin process from counterparties if total uncollateralised mark-to-market exposure exceeds the threshold and minimum transfer amount specified in the CSA. With certain counterparties, the CSA is reciprocal and requires us to post collateral if the overall mark-to-market values of positions are in the counterparty's favour and exceed an agreed threshold. Liquidity and Funding Risk Liquidity and Funding Risk is the risk that the Group may not have sufficient stable or diverse sources of funding to meet its obligations as they fall due. The Group's Liquidity and Funding Risk framework requires each country to ensure that it operates within predefined liquidity limits and remains in compliance with Group liquidity policies and practices, as well as local regulatory requirements. The Group achieves this through a combination of setting Risk Appetite and associated limits, policy formation, risk measurement and monitoring, prudential and internal stress testing, governance and review. Despite the challenging macroeconomic environment, the Group has maintained resilience and retained a robust liquidity position. The Group continues to focus on improving the quality and diversification of its funding mix and remains committed to supporting its clients. Primary sources of funding (audited) The Group's funding strategy is largely driven by its policy to maintain adequate liquidity at all times, in all geographic locations and for all currencies. This is done to ensure the Group can meet all of its obligations as they fall due. The Group's funding profile is therefore well diversified across different sources, maturities and currencies. The Group's assets are funded predominantly by customer deposits, supplemented with wholesale funding, which is diversified by type and maturity. The Group maintains access to wholesale funding markets in all major financial centres in which it operates. This seeks to ensure that the Group has market intelligence, maintains stable funding lines and can obtain optimal pricing when performing cashflow management activities. In 2023, the Group issued approximately $8.1 billion of securities, all in the form of senior debt, from its holding company (HoldCo) Standard Chartered PLC (2022 $5.2 billion of senior debt securities, $0.75 billion of subordinated debt securities and $1.25 billion of Additional Tier 1 securities). In the next 12 months, approximately $8.5 billion of the Group's senior debt, subordinated debt and Additional Tier 1 securities in total are either falling due for repayment contractually or callable by the Group. Page 58 Liquidity and Funding Risk metrics The Group continually monitors key liquidity metrics, both on a country basis and consolidated across the Group. The following liquidity and funding Board Risk Appetite metrics define the maximum amount and type of risk that the Group is willing to assume in pursuit of its strategy: liquidity coverage ratio (LCR), liquidity stress survival horizons, recovery capacity and net stable funding ratio (NSFR). In addition to the Board Risk Appetite, there are further limits that apply at Group and country level such as, external wholesale borrowing (WBE) and cross currency limits. Liquidity coverage ratio (LCR) The LCR is a regulatory requirement set to ensure the Group has sufficient unencumbered high-quality liquid assets to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. The Group monitors and reports its liquidity positions under the Liquidity Coverage Ratio per PRA rulebook and has maintained its LCR above the prudential requirement. The Group maintained strong liquidity ratios despite a challenging macroeconomic and geopolitical environment. At the reporting date, the Group LCR was 145 per cent (31 December 2022: 147 per cent), with a surplus to both Board-approved Risk Appetite and regulatory requirements. Adequate liquidity was held across our footprint to meet all local prudential LCR requirements where applicable. 2023 $million 2022 $million Liquidity buffer 185,643 177,037 Total net cash outflows 128,111 120,720 Liquidity coverage ratio 145% 147% Stress coverage The Group intends to maintain a prudent and sustainable funding and liquidity position, in all countries and currencies, such that it can withstand a severe but plausible liquidity stress. Our approach to managing liquidity and funding is reflected in the Board-level Risk Appetite Statement which includes the following: "The Group should have sufficient stable and diverse sources of funding to meet its contractual and contingent obligations as they fall due." The Group's internal liquidity stress testing framework covers the following stress scenarios: �� Standard Chartered-specific - Captures the liquidity impact from an idiosyncratic event affecting Standard Chartered only with the rest of the market assumed to be operating normally. �� Market wide - Captures the liquidity impact from a market-wide crisis affecting all participants in a country, region or globally. �� Combined - Assumes both Standard Chartered-specific and market-wide events affect the Group simultaneously and hence is the most severe scenario. All scenarios include, but are not limited to, modelled outflows for retail and wholesale funding, off-balance sheet funding risk, cross-currency funding risk, intraday risk, franchise risk and risks associated with a deterioration of a firm's credit rating. Concentration risk approach has been enhanced to capture single name and industry concentration. Stress testing results show that a positive surplus was maintained under all scenarios at 31 December 2023, and respective countries were able to survive for a period of time as defined under each scenario. The results take into account currency convertibility and portability constraints while calculating the liquidity surplus at Group level. Standard Chartered Bank's credit ratings as at 31 December 2023 were A+ with stable outlook (Fitch), A+ with stable outlook (S&P) and A1 with stable outlook (Moody's). As of 31 December 2023, the estimated contractual outflow of a three-notch long-term ratings downgrade is $1.1 billion. Page 59 External wholesale borrowing A risk limit is set to prevent excessive reliance on wholesale borrowing. Within the definition of wholesale borrowing, limits are applied to all branches and operating subsidiaries in the Group and as at the reporting date, the Group remained within the Risk Appetite. Advances-to-deposits ratio This is defined as the ratio of total loans and advances to customers relative to total customer deposits. An advances-to-deposits ratio below 100 per cent demonstrates that customer deposits exceed customer loans as a result of the emphasis placed on generating a high level of funding from customers. The Group's advances-to-deposits ratio has decreased by 4.1 per cent to 53.3 per cent, driven by an increase in customer deposits of 3 per cent and with a reduction of 5 per cent in customer loans and advances. Deposits from customers as at 31 December 2023 are $486,666 million (31 December 2022: $473,383 million). 2023 $million 2022 $million Total loans and advances to customers1,2 259,481 271,897 Total customer accounts3 486,666 473,383 Advances-to-deposits ratio 53.3% 57.4% 1 Excludes reverse repurchase agreement and other similar secured lending of $13,996 million and includes loans and advances to customers held at fair value through profit and loss of $7,212 million 2 Loans and advances to customers for the purpose of the advances-to-deposits ratio excludes $20,710 million of approved balances held with central banks, confirmed as repayable at the point of stress (31 December 2022: $20,798 million) 3 Includes customer accounts held at fair value through profit or loss of $17,248 million (31 December 2022: $11,706 million) Page 60 Net stable funding ratio (NSFR) The NSFR is a PRA regulatory requirement that stipulates institutions to maintain a stable funding profile in relation to an assumed duration of their assets and off-balance sheet activities over a one-year horizon. It is the ratio between the amount of available stable funding (ASF) and the amount of required stable funding (RSF). ASF factors are applied to balance sheet liabilities and capital, based on their perceived stability and the amount of stable funding they provide. Likewise, RSF factors are applied to assets and off-balance sheet exposures according to the amount of stable funding they require. The regulatory requirements for NSFR are to maintain a ratio of at least 100 per cent. The average ratio for the past four quarters is 136 per cent. Liquidity pool The liquidity value of the Group's LCR eligible liquidity pool at the reporting date was $186 billion. The figures in the table below account for haircuts, currency convertibility and portability constraints per PRA rules for transfer restrictions, and therefore are not directly comparable with the consolidated balance sheet. A liquidity pool is held to offset stress outflows as defined in the LCR per PRA rulebook. 2023 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Level 1 securities Cash and balances at central banks 32,504 2,456 46,715 81,675 Central banks, governments/public sector entities 54,562 1,363 15,843 71,768 Multilateral development banks and international organisations 5,202 961 10,754 16,917 Other 130 - 1,161 1,291 Total Level 1 securities 92,398 4,780 74,473 171,651 Level 2A securities 6,194 128 6,946 13,268 Level 2B securities 348 - 376 724 Total LCR eligible assets 98,940 4,908 81,795 185,643 2022 Asia $million Africa & Middle East $million Europe & Americas $million Total $million Level 1 securities Cash and balances at central banks 34,101 1,066 36,522 71,689 Central banks, governments/public sector entities 50,881 2,712 23,680 77,273 Multilateral development banks and international organisations 3,510 837 10,843 15,190 Other 37 7 1,430 1,474 Total Level 1 securities 88,529 4,622 72,475 165,626 Level 2A securities 4,044 139 6,033 10,216 Level 2B securities 71 21 1,103 1,195 Total LCR eligible assets 92,644 4,782 79,611 177,037 Page 61 Liquidity analysis of the Group's balance sheet (audited) Contractual maturity of assets and liabilities The following table presents assets and liabilities by maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date on a discounted basis. Contractual maturities do not necessarily reflect actual repayments or cashflows. Within the tables below, cash and balances with central banks, interbank placements and investment securities that are fair valued through other comprehensive income are used by the Group principally for liquidity management purposes. As at the reporting date, assets remain predominantly short-dated, with 63 per cent maturing in less than one year. The less than six-month cumulative net funding gap improved by $35 billion as of 31 December 2023 compared to 31 December 2022. 2023 One month or less $million Between one month and three months $million Between three months and six months $million Between six months and nine months $million Between nine months and one year $million Between one year and two years $million Between two years and five years $million More than five years and undated $million Total $million Assets Cash and balances at central banks 63,752 - - - - - - 6,153 69,905 Derivative financial instruments 12,269 10,632 6,910 3,611 2,921 4,650 6,038 3,403 50,434 Loans and advances to banks1,2 28,814 23,384 10,086 4,929 5,504 1,583 2,392 1,098 77,790 Loans and advances to customers1,2 86,695 55,009 25,492 15,392 14,537 25,987 26,545 95,829 345,486 Investment securities1 12,187 28,999 17,131 18,993 20,590 24,244 44,835 50,168 217,147 Other assets1 17,611 31,729 1,286 409 587 67 93 10,300 62,082 Total assets 221,328 149,753 60,905 43,334 44,139 56,531 79,903 166,951 822,844 Liabilities Deposits by banks1,3 26,745 1,909 1,398 503 778 1,326 2,848 2 35,509 Customer accounts1,4 384,444 47,723 28,288 13,647 11,806 7,787 38,578 2,349 534,622 Derivative financial instruments 13,111 12,472 6,655 4,001 3,433 5,142 6,932 4,315 56,061 Senior debt5 130 1,111 1,537 1,389 624 11,507 20,127 14,443 50,868 Other debt securities in issue1 3,123 5,822 6,109 3,235 3,037 492 482 195 22,495 Other liabilities 14,929 26,447 1,695 544 883 1,830 1,809 12,763 60,900 Subordinated liabilities and other borrowed funds 980 68 19 172 453 312 1,936 8,096 12,036 Total liabilities 443,462 95,552 45,701 23,491 21,014 28,396 72,712 42,163 772,491 Net liquidity gap (222,134) 54,201 15,204 19,843 23,125 28,135 7,191 124,788 50,353 1 Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see Note 13 Financial instruments 2 Loans and advances include reverse repurchase agreements and other similar secured lending of $97.6 billion 3 Deposits by banks include repurchase agreements and other similar secured borrowing of $5.6 billion 4 Customer accounts include repurchase agreements and other similar secured borrowing of $48.0 billion 5 Senior debt maturity profiles are based upon contractual maturity, which may be later than call options over the debt held by the Group Page 62 2022 One month or less $million Between one month and three months $million Between three months and six months $million Between six months and nine months $million Between nine months and one year $million Between one year and two years $million Between two years and five years $million More than five years and undated $million Total $million Assets Cash and balances at central banks 49,097 - - - - - - 9,166 58,263 Derivative financial instruments 15,558 12,030 8,352 4,446 3,602 6,026 8,410 5,293 63,717 Loans and advances to banks1,2 24,135 15,293 11,595 4,971 4,138 2,608 1,022 687 64,449 Loans and advances to customers1,2 96,351 58,605 27,751 12,540 13,444 19,150 33,413 96,476 357,730 Investment securities1 14,175 26,008 23,364 13,024 12,891 22,805 41,217 52,756 206,240 Other assets1 15,210 31,276 1,341 181 698 89 23 20,705 69,523 Total assets 214,526 143,212 72,403 35,162 34,773 50,678 84,085 185,083 819,922 Liabilities Deposits by banks1,3 29,733 2,042 2,245 871 349 1,432 144 7 36,823 Customer accounts1,4 402,069 49,769 25,110 15,961 15,216 7,830 2,451 1,823 520,229 Derivative financial instruments 15,820 15,810 8,645 5,002 4,102 6,795 7,904 5,784 69,862 Senior debt5 204 342 509 963 711 5,855 19,673 12,086 40,343 Other debt securities in issue1 2,758 5,504 8,732 7,316 2,935 1,088 870 268 29,471 Other liabilities 19,857 24,725 1,616 521 503 902 1,043 10,296 59,463 Subordinated liabilities and other borrowed funds 2,004 105 22 248 25 1,882 2,045 7,384 13,715 Total liabilities 472,445 98,297 46,879 30,882 23,841 25,784 34,130 37,648 769,906 Net liquidity gap (257,919) 44,915 25,524 4,280 10,932 24,894 49,955 147,435 50,016 1 Loans and advances, investment securities, other assets, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see Note 13 Financial instruments 2 Loans and advances include reverse repurchase agreements and other similar secured lending of $90 billion 3 Deposits by banks include repurchase agreements and other similar secured borrowing of $7.0 billion 4 Customer accounts include repurchase agreements and other similar secured borrowing of $46.8 billion 5 Senior debt maturity profiles are based upon contractual maturity, which may be later than call options over the debt held by the Group Behavioural maturity of financial assets and liabilities The cashflows presented in the previous section reflect the cashflows that will be contractually payable over the residual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actual repayments or cashflow. In practice, certain assets and liabilities behave differently from their contractual terms, especially for short-term customer accounts, credit card balances and overdrafts, which extend to a longer period than their contractual maturity. On the other hand, mortgage balances tend to have a shorter repayment period than their contractual maturity date. Expected customer behaviour is assessed and managed on a country basis using qualitative and quantitative techniques, including analysis of observed customer behaviour over time. Maturity of financial liabilities on an undiscounted basis (audited) The following table analyses the contractual cashflows payable for the Group's financial liabilities by remaining contractual maturities on an undiscounted basis. The financial liability balances in the table below will not agree with the balances reported in the consolidated balance sheet as the table incorporates all contractual cashflows, on an undiscounted basis, relating to both principal and interest payments. Derivatives not treated as hedging derivatives are included in the 'On demand' time bucket and not by contractual maturity. Within the 'More than five years and undated' maturity band are undated financial liabilities, the majority of which relate to subordinated debt, on which interest payments are not included as this information would not be meaningful, given the instruments are undated. Interest payments on these instruments are included within the relevant maturities up to five years. Page 63 2023 One month or less $million Between one month and three months $million Between three months and six months $million Between six months and nine months $million Between nine months and one year $million Between one year and two years $million Between two years and five years $million More than five years and undated $million Total $million Deposits by banks 26,759 1,921 1,417 513 790 1,328 2,848 4 35,580 Customer accounts 385,361 48,140 28,763 14,049 12,190 8,118 39,000 3,036 538,657 Derivative financial instruments 53,054 517 46 44 103 202 887 1,208 56,061 Debt securities in issue 3,507 6,995 8,015 5,070 4,002 13,663 23,413 16,396 81,061 Subordinated liabilities and other borrowed funds 1,043 134 46 208 570 395 2,389 14,367 19,152 Other liabilities 12,200 26,291 1,560 515 884 1,832 1,810 11,513 56,605 Total liabilities 481,924 83,998 39,847 20,399 18,539 25,538 70,347 46,524 787,116 2022 One month or less $million Between one month and three months $million Between three months and six months $million Between six months and nine months $million Between nine months and one year $million Between one year and two years $million Between two years and five years $million More than five years and undated $million Total $million Deposits by banks 29,742 2,048 2,275 876 362 1,455 144 8 36,910 Customer accounts 401,893 49,196 24,713 15,614 15,283 8,280 5,937 2,591 523,507 Derivative financial instruments 65,912 48 12 116 213 940 1,185 1,436 69,862 Debt securities in issue 3,060 5,912 9,631 8,574 3,979 7,844 22,259 18,465 79,724 Subordinated liabilities and other borrowed funds 2,097 165 44 273 28 2,029 2,610 14,004 21,250 Other liabilities 17,275 25,751 1,517 504 496 895 901 9,669 57,008 Total liabilities 519,979 83,120 38,192 25,957 20,361 21,443 33,036 46,173 788,261 Interest Rate Risk in the Banking Book The following table provides the estimated impact to a hypothetical base case projection of the Group's earnings under the following scenarios: �� A 50 basis point parallel interest rate shock (up and down) to the current market-implied path of rates, across all yield curves �� A 100 basis point parallel interest rate shock (up and down) to the current market-implied path of rates, across all yield curves These interest rate shock scenarios assume all other economic variables remain constant. The sensitivities shown represent the estimated change to a hypothetical base case projected net interest income (NII), plus the change in interest rate implied income and expense from FX swaps used to manage banking book currency positions, under the different interest rate shock scenarios. The base case projected NII is based on the current market-implied path of rates and forward rate expectations. The NII sensitivities below stress this base case by a further 50 or 100bps. Actual observed interest rate changes will lag behind market expectation. Accordingly, the shocked NII sensitivity does not represent a forecast of the Group's net interest income. The interest rate sensitivities are indicative stress tests and based on simplified scenarios, estimating the aggregate impact of an unanticipated, instantaneous parallel shock across all yield curves over a one-year horizon, including the time taken to implement changes to pricing before becoming effective. The assessment assumes that the size and mix of the balance sheet remain constant and that there are no specific management actions in response to the change in rates. No assumptions are made in relation to the impact on credit spreads in a changing rate environment. Page 64 Significant modelling and behavioural assumptions are made regarding scenario simplification, market competition, pass-through rates, asset and liability re-pricing tenors, and price flooring. In particular, the assumption that interest rates of all currencies and maturities shift by the same amount concurrently, and that no actions are taken to mitigate the impacts arising from this are considered unlikely. Reported sensitivities will vary over time due to a number of factors including changes in balance sheet composition, market conditions, customer behaviour and risk management strategy. Therefore, while the NII sensitivities are a relevant measure of the Group's interest rate exposure, they should not be considered an income or profit forecast. Estimated one-year impact to earnings from a parallel shift in yield curves at the beginning of the period of: 2023 USD bloc $million HKD bloc $million SGD bloc $million KRW bloc $million CNY bloc $million Other currency bloc $million Total $million + 50 basis points 90 10 50 10 30 160 350 - 50 basis points (150) (30) (50) (20) (40) (180) (470) + 100 basis points 180 10 100 20 60 320 690 - 100 basis points (280) (40) (100) (40) (80) (350) (890) Estimated one-year impact to earnings from a parallel shift in yield curves at the beginning of the period of: 2022 USD bloc $million HKD bloc $million SGD bloc $million KRW bloc $million CNY bloc $million Other currency bloc $million Total $million + 50 basis points 80 20 40 50 30 150 370 - 50 basis points (80) (20) (40) (60) (30) (140) (370) + 100 basis points 160 40 90 100 50 300 740 As at 31 December 2023, the Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 50 basis points to increase projected NII by $350 million. The equivalent impact from a parallel decrease of 50 basis points would result in a reduction in projected NII of $470 million. The Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 100 basis points to increase projected NII by $690 million. The equivalent impact from a parallel decrease of 100 basis points would result in a reduction in projected NII of $890 million. The benefit from rising interest rates is primarily from reinvesting at higher yields and from assets re-pricing faster and to a greater extent than deposits. NII sensitivity in falling rate scenarios has increased versus 31 December 2022, due to changes in modelling assumptions to reflect expected re-pricing activity on Retail and Transaction Banking current accounts and savings accounts in the current interest rate environment. Over the course of 2023 the size of the interest rate swaps and HTC-accounted bond portfolios used to programmatically hedge the behavioural lives of structural equity and CASA balances increased from $31 billion to $47 billion. The portfolios had a weighted average maturity of 2.9 years, which reflects the behaviouralised lives of the rate-insensitive deposit and equity balances that they hedge, and a yield of 3.1%, as at 31 December 2023. Operational and Technology Risk The Group defines Operational and Technology risk as the potential for loss from inadequate or failed internal processes, technology events, human error, or from the impact of external events (including legal risks). Operational and Technology risk may occur anywhere in the Group, including third-party processes. Operational and Technology risk profile Risk management practices help the business grow safely and ensure governance and management of Operational and Technology risk through the delivery and embedding of effective frameworks and policies, together with continuous oversight and assurance. Managing Operational and Technology risk makes the Group more efficient and enables it to offer better, sustainable service to its customers. The Group's Operational and Technology Risk Type Framework ('O&T RTF') is designed to enable the Group to govern, identify, measure, monitor and test, manage and report on its Operational and Technology risks. The Group continues to ensure the O&T RTF supports the business and the functions in effectively managing risk and controls within risk appetite to meet their strategic objectives. Page 65 The Group has demonstrated progress on ensuring visibility of risks and risk management through implementation of a standardised risk taxonomy. Standardising the risk taxonomy enables improved risk aggregation and reporting as well as providing opportunities for simplifying the process of risk identification and assessment. A revised process universe along with taxonomies for causes and controls have been designed and will be implemented in 2024, with control categories supporting the streamlining and removal of duplicate controls, reducing complexity, and improving risk and control management. Macro processes will provide a client-centric view and enable clearer accountability for delivery as well as management of risks in line with business objectives. Operational and Technology risk is elevated in areas such as Information and Cyber Security, Data Management and Transaction Processing. Other key areas of focus are Change, Systems Health/Technology risk, Third Party risk, Resilience and Regulatory Compliance. Management has focused on addressing these areas, improving the sustainable operating environment and has initiated a number of programmes to enhance the control environment. The Group continues to monitor and manage Operational and Technology risks associated with the external environment such as geopolitical factors and the increasing risk of cyber-attacks. Digitalisation and inappropriate use of Artificial Intelligence, various regulatory expectations across our footprint and the changing technology landscape remain key emerging areas to manage, allowing the Group to keep pace with new business developments, whilst ensuring that risk and control frameworks evolve accordingly. The Group continues to strengthen its risk management to understand the full spectrum of risks in the operating environment, enhance its defences and improve resilience. Operational and Technology risk events and losses Operational losses are one indicator of the effectiveness and robustness of the non-financial risk control environment. The Group's profile of operational loss events in 2023 and 2022 is summarised in the table below, which shows the distribution of gross operational losses by Basel business line. Distribution of Operational Losses by Basel business line % Loss 2023 2022�� Agency Services 1.8% 3.0% Asset Management 0.1% 0.8% Commercial Banking 8.4% 8.9% Corporate Finance 7.6% 1.1% Corporate Items 35.5% 2.5% Payment and Settlements 17.6% 42.9% Retail Banking 20.3% 25.5% Retail Brokerage 0.0% 0.0% Trading and Sales 8.5% 15.2% 1 Losses in 2022 have been restated to include incremental events recognised in 2023 The Group's profile of operational loss events in 2023 and 2022 is also summarised by Basel event type in the table below. It shows the distribution of gross operational losses by Basel event type. Distribution of Operational Losses by Basel event type % Loss 2023 20221 Business disruption and system failures 6.0% 3.5% Clients' products and business practices 3.6% 7.1% Damage to physical assets 0.0% 0.0% Employment practices and workplace safety 0.6% 0.2% Execution delivery and process management 75.0% 79.6% External fraud 14.6% 8.6% Internal fraud 0.2% 0.9% 1 Losses in 2022 have been restated to include incremental events recognised in 2023 Other principal risks Losses arising from operational failures for other principal and integrated risks are reported as operational losses. Operational losses do not include operational risk-related credit impairments. Page 66 Enterprise Risk Management Framework Risk management is at the heart of banking, it is what we do. Managing risk effectively is how we drive commerce and prosperity for our clients and our communities, and it is how we grow sustainably and profitably as an organisation. Effective risk management is essential in delivering consistent and sustainable performance for all our stakeholders and is a central part of the financial and operational management of the Group. The Group adds value to clients and the communities in which they operate by balancing risk and reward to generate returns for shareholders. The Enterprise Risk Management Framework (ERMF) enables the Group to manage enterprise-wide risks, with the objective of maximising risk-adjusted returns while remaining within our Risk Appetite (RA). The ERMF is embedded across the Group, including its branches and subsidiaries1, and is reviewed annually. The latest version is effective from January 2024. Annual review In the 2023 review, the concepts of Integrated Risk Types (IRTs) and IRT Owner roles were discontinued. Oversight on IRTs, i.e. Climate Risk, Digital Assets and Third Party Risk, is provided through the Risk Type Frameworks (RTFs) and relevant dedicated policies. The subject matter experts as policy owners for these risks provide overall governance and a holistic view of how risks are monitored and managed across the Principal Risk Types (PRTs). Risk culture Risk culture encompasses our general awareness, attitudes, and behaviours towards risk, as well as how risk is managed at enterprise level. A healthy risk culture is one in which everyone takes personal responsibility to identify and assess, openly discuss, and take prompt action to address existing and emerging risks. We expect those in our control functions to provide oversight and challenge constructively, collaboratively, and in a timely manner. This effort is reflected in our valued behaviours, underpinned by our Code of Conduct and Ethics, and reinforced by how we hire, develop, reward our people, serve our clients, and contribute to communities around the world. The risks we face constantly evolve, and we must always look for ways to manage them as effectively as possible. While unfavourable outcomes will occur from time to time, a healthy risk culture means that we react quickly and transparently. We can then take the opportunity to learn from our experience and improve our framework and processes. Strategic risk management The Group's approach to strategic risk management includes the following: �� Risk identification: impact analyses of risks that arise from the Group's growth plans, strategic initiatives, and business model vulnerabilities are reviewed. This assesses how existing risks have evolved in terms of relative importance or whether new risks have emerged. �� Risk Appetite: impact analysis is performed to assess if strategic initiatives can be achieved within RA and highlight areas where additional RA should be considered. �� Stress testing: the risks highlighted during the strategy review and other risk identification processes are used to develop scenarios for enterprise stress tests. In order to ensure that the Group's Strategy remains within the approved RA, the Group Chief Risk Officer (GCRO) and Group Chief Financial Officer (GCFO) recommend strategic actions based on the stress test results. Page 67 Roles and responsibilities Senior Managers Regime2 Roles and responsibilities under the ERMF are aligned to the objectives of the Senior Managers Regime (SMR). The GCRO is responsible for the overall development and maintenance of the Group's ERMF and for identifying material risks which the Group may be exposed to. The GCRO delegates effective implementation of the RTFs to Risk Framework Owners (RFO) who provide second line of defence oversight for their respective PRTs. In addition, the GCRO is the senior manager responsible for the development of the Group's Digital Assets Risk Assessment Approach, and management of Climate Risk. 1 The Group's ERMF and System of Internal Control applies only to wholly controlled subsidiaries of the Group, and not to Associates, Joint Ventures or Structured Entities of the Group. 2 Senior managers refers to individuals designated as senior management functions under the FCA and PRA Senior Managers Regime. The Risk function The Risk function provides oversight and challenge on the Group's risk management, ensuring that business is conducted in line with regulatory expectations. The GCRO directly manages the Risk function, which is independent from the origination, trading, and sales functions of the businesses. The Risk function is responsible for: �� Determining the RA for approval by Group's Management Team (GMT) and the Board. �� Maintaining the ERMF, ensuring that it remains relevant and appropriate to the Group's business activities, and is effectively communicated and implemented across the Group. �� Ensuring that risks are properly assessed, risk and return decisions are transparent and risks are controlled in accordance with the Group's standards and RA. �� Overseeing and challenging the management of PRTs under the ERMF. �� Ensuring that the necessary balance in making risk and return decisions is not compromised by short-term pressures to generate revenues through the independence of the Risk function. In addition, the Risk function provides specialist capabilities relevant to risk management processes in the broader organisation. The Risk function supports the Group's strategy by building a sustainable ERMF that places regulatory and compliance standards, together with culture of appropriate conduct, at the forefront of the Group's agenda. Our Conduct, Financial Crime and Compliance (CFCC) function works alongside the Risk function within the ERMF to deliver a unified second line of defence. Three lines of defence model The Group applies a three line of defence model to its day-to-day activities for effective risk management, and to reinforce a strong governance and control environment. Typically: �� The businesses and functions engaged in or supporting revenue generating activities that own and manage the risks constitute the first line of defence. �� The control functions, independent of the first line of defence, that provide oversight and challenge of risk management activities act as the second line of defence. �� Internal Audit acts as the third line of defence providing independent assurance on the effectiveness of controls supporting the activities of the first and second line of defence functions. Page 68 Risk Appetite and profile The Group recognises the following constraints which determine the risks that we are willing to take in pursuit of our strategy and the development of a sustainable business: �� Risk capacity is the maximum level of risk the Group can assume, given its current capabilities and resources, before breaching constraints determined by capital and liquidity requirements or the internal operational environment, or otherwise failing to meet the expectations of regulator and law enforcement agencies. �� RA is defined by the Group and approved by the Board. It is the boundary for the risk that the Group is willing to undertake to achieve its strategic objectives and Corporate Plan. The Board is responsible for approving the RA Statements, which are underpinned by a set of financial and operational control parameters known as RA metrics and their associated thresholds. These directly constrain the aggregate risk exposures that can be taken across the Group. The Group RA is reviewed at least annually to ensure that it is fit for purpose and aligned with strategy, with focus given to new or emerging risks. Risk Appetite Framework The Group RA is defined in accordance with risk management principles that inform our overall approach to risk management and our risk culture. We set RA to enable us to grow sustainably whilst managing our risks, giving confidence to our stakeholders. The Group RA is supplemented by risk control tools such as granular-level limits, policies, standards, and other operational control parameters that are used to maintain the Group's risk profile within approved RA. Risk Appetite Statement The Group will not compromise compliance with its Risk Appetite in order to pursue revenue growth or higher returns. See Table 1 for the set of RA statements. Risk identification and assessment Identification and assessment of potentially adverse risk events is an essential first step in managing the risks of any business or activity. To ensure consistency in communication, we use PRTs to classify our risk exposures. We also recognise the need to maintain a holistic perspective since: �� a single transaction or activity may give rise to multiple types of risk exposure; �� risk concentrations may arise from multiple exposures that are closely correlated; and �� a given risk exposure may change its form from one risk type to another. There are also sources of risk that arise beyond our own operations, such as the Group's dependency on suppliers for the provision of services and technology. As the Group remains accountable for risks arising from the actions of such third parties, failure to adequately monitor and manage these relationships could materially impact the Group's ability to operate. The Group maintains a dynamic risk-scanning process with inputs on the internal and external risk environment, as well as potential threats and opportunities from the business and client perspectives. The Group maintains a taxonomy of the PRTs, and risk sub-types; as well as the Topical and Emerging Risks (TERs) inventory that includes near-term as well as longer-term uncertainties. Risk assessments of planned growth and strategic initiatives against the Group's RA is undertaken annually. The GCRO and the Group Risk Committee (GRC) regularly review reports on the risk profile for the PRTs, adherence to Group RA and the Group risk inventory, including TERs. They use this information to escalate material developments and make recommendations to the Board annually on any potential changes to our Corporate Plan. Page 69 Stress testing The objective of stress testing is to support the Group in assessing that it: �� does not have a portfolio with excessive risk concentration that could produce unacceptably high losses under severe but plausible scenarios; �� has sufficient financial resources to withstand severe but plausible scenarios; �� has the financial flexibility to respond to extreme but plausible scenarios; �� understands key business model risks and considers what kind of event might crystallise those risks - even if extreme and with a low likelihood of occurring; �� Identify, as required, actions to mitigate the likelihood or impact of those events; �� considers how the outcome of plausible stress events, including TERs, may impact availability of liquidity and regulatory capital; and �� has set RA metrics at appropriate levels. Enterprise stress tests incorporate Capital and Liquidity Adequacy Stress Tests, including recovery and resolution, as well as reverse stress tests. Stress tests are performed at the Group, country, business, and portfolio level under a wide range of risks and at varying degrees of severity. Unless specifically set by the regulator, scenario design is a bespoke process that aims to explore risks that can adversely impact the Group. The Board delegates approval of the Bank of England (BoE) stress test submissions to the Board Risk Committee (BRC), which reviews the recommendations from the GRC. Based on the stress test results, the GCFO and GCRO can recommend strategic actions to the Board to ensure that the Group's strategy remains within RA. In addition, analysis is run at PRT level to assess specific risks and concentrations that the Group may be exposed to. These include qualitative assessments such as stressing of credit sectors or portfolios, measures such as Value at Risk (VaR) and multi-factor scenarios in Traded Risk and internal stressed liquidity metrics. Non-financial risk types are also stressed to assess the necessary capital requirements under the Operational & Technology RTF. The Group has also undertaken a number of Climate Risk stress tests, both those mandated by regulators as well as management scenarios. Page 70 Principal Risk Types PRTs are those risks that are inherent in our strategy and business model and have been formally defined in the Group's ERMF. These risks are managed through distinct RTFs which are approved by the GCRO. The PRTs and associated RA Statements are reviewed annually. The table below shows the Group's current PRTs. Table 1: Principal Risk Types Definition and RA Statement Principal Risk Types Definition Risk Appetite Statement Credit Risk Potential for loss due to failure of a counterparty to meet its agreed obligations to pay the Group. The Group manages its credit exposures following the principle of diversification across products, geographies, client segments and industry sectors. Traded Risk Potential for loss resulting from activities undertaken by the Group in financial markets. The Group should control its financial markets and activities to ensure that market and counterparty credit risk losses do not cause material damage to the Group's franchise. Treasury Risk Potential for insufficient capital, liquidity, or funding to support our operations, the risk of reductions in earnings or value from movements in interest rates impacting banking book items and the potential for losses from a shortfall in the Group's pension plans. The Group should maintain sufficient capital, liquidity and funding to support its operations, and an interest rate profile ensuring that the reductions in earnings or value from movements in interest rates impacting banking book items does not cause material damage to the Group's franchise. In addition, the Group should ensure its pension plans are adequately funded. Operational and Technology Risk Potential for loss resulting from inadequate or failed internal processes, technology events, human error, or from the impact of external events (including legal risks). The Group aims to control operational and technology risks to ensure that operational losses (financial or reputational), including any related to conduct of business matters, do not cause material damage to the Group's franchise. Financial Crime Risk1 Potential for legal or regulatory penalties, material financial loss or reputational damage resulting from the failure to comply with applicable laws and regulations relating to international sanctions, anti-money laundering and anti-bribery and corruption, and fraud. The Group has no appetite for breaches in laws and regulations related to Financial Crime, recognising that whilst incidents are unwanted, they cannot be entirely avoided. Compliance Risk Potential for penalties or loss to the Group or for an adverse impact to our clients, stakeholders or to the integrity of the markets we operate in through a failure on our part to comply with laws, or regulations. The Group has no appetite for breaches in laws and regulations related to regulatory non-compliance; recognising that whilst incidents are unwanted, they cannot be entirely avoided. Information and Cyber Security Risk Risk to the Group's assets, operations, and individuals due to the potential for unauthorised access, use, disclosure, disruption, modification, or destruction of information assets and/or information systems. The Group aims to mitigate and control ICS risks to ensure that incidents do not cause the Bank material harm, business disruption, financial loss or reputational damage - recognising that whilst incidents are unwanted, they cannot be entirely avoided. Reputational and Sustainability Risk Potential for damage to the franchise (such as loss of trust, earnings or market capitalisation), because of stakeholders taking a negative view of the Group through actual or perceived actions or inactions, including a failure to uphold responsible business conduct as we strive to do no significant environmental and social harm through our client, third party relationships, or our own operations. The Group aims to protect the franchise from material damage to its reputation by ensuring that any business activity is satisfactorily assessed and managed with the appropriate level of management and governance oversight. This includes a potential failure to uphold responsible business conduct in striving to do no significant environmental and social harm. Model Risk Potential loss that may occur because of decisions or the risk of mis-estimation that could be principally based on the output of models, due to errors in the development, implementation, or use of such models. The Group has no appetite for material adverse implications arising from misuse of models or errors in the development or implementation of models; whilst accepting some model uncertainty. 1 Fraud forms part of the Financial Crime RA Statement but in line with market practice does not apply a zero-tolerance approach In addition to the PRTs, there is a RA statement for Climate Risk: "The Group aims to measure and manage financial and non-financial risks arising from climate change, and reduce emissions related to our own activities and those related to the financing of clients in alignment with the Paris Agreement." Page 71 ERMF effectiveness reviews The GCRO is responsible for annually affirming the effectiveness of the ERMF to the BRC via an effectiveness review. This review uses evidence-based self-assessments for all the RTFs and relevant policies. A top-down review and challenge of the results is conducted by the GCRO with all RFOs and an opinion on the internal control environment is provided by Group Internal Audit. The ERMF effectiveness review enables measurement of year-on-year progress. The key outcomes of the 2023 review are: �� Continued focus on embedding the ERMF across the organisation. �� Financial risks continue to be more effectively managed and the Group continues to make good progress in embedding non-financial risk management. �� Other aspects of the ERMF, including the key risk committees and key supporting standards, are established. �� Country-led self-assessments ensure adherence to the ERMF. Country and regional risk committees continue to play an active role in managing and overseeing material issues arising in countries. Ongoing ffectiveness reviews allow for a structured approach to identify improvement opportunities and build plans to address them. In 2024, the Group aims to further strengthen its risk management practices by improving the management of non-financial risks within its businesses, functions and across our footprint. Executive and Board risk oversight Overview The Board has ultimate responsibility for risk management and is supported by five core Board level committees. The Board approves the ERMF based on the recommendation from the BRC, which also recommends the Group RA Statement for all PRTs. In addition, the Culture and Sustainability Committee oversees the Group's culture and key sustainability priorities. Board and Executive level risk committee governance structure The Committee governance structure below presents the view as of 2023. Group Risk Committee The GRC, which derives its authority from the GCRO, is responsible for ensuring the effective management of risk throughout the Group in support of the Group's strategy. The GCRO chairs the GRC, whose members are drawn from the Group Management Team. The GRC oversees the effective implementation of the ERMF for the Group, including the delegation of any part of its authorities to appropriate individuals or sub-committees. Group Risk Committee sub-committees �� The Group Non-Financial Risk Committee (GNFRC), chaired by the Global Head, Risk, Functions and Operational Risk, governs the non-financial risks throughout the Group, in support of the ERMF and the Group's strategy. The GNFRC also reviews the adequacy of the internal control system across in-scope PRTs. �� The Group Financial Crime Risk Committee (GFCRC), chaired by the Group Head, CFCC, governs the Financial Crime Risk Type (excluding Fraud Risk and Secondary Reputational Risk arising from Financial Crime Risk). The GFCRC ensures that the Financial Crime Risk profile is managed within RA and policies. �� The Group Responsibility and Reputational Risk Committee (GRRRC), chaired by the Group Head, CFCC, ensures the effective management of Reputational and Sustainability Risk across the Group. This includes providing oversight of matters arising from clients, products, transactions and strategic coverage-related decisions and matters escalated by the respective RFOs. �� The International Financial Reporting Standards (IFRS) 9 Impairment Committee, co-chaired by the Global Head Enterprise Risk Management (ERM) and Group Head, Central Finance, ensures the effective management of Expected Credit Loss (ECL) computations, as well as stage allocation of financial assets for quarterly financial reporting. �� The Model Risk Committee, chaired by the Global Head, ERM, ensures the effective measurement and management of Model Risk in line with internal policies and RA. Page 72 �� The Corporate, Commercial and Institutional Banking (CCIB) Risk Committee, chaired by the Chief Risk Officer (CRO), CCIB and Europe and Americas, ensures the effective management of risk throughout CCIB in support of the Group's strategy. �� The Consumer, Private and Business Banking (CPBB) Risk Committee, chaired by the CRO, CPBB, ensures the effective management of risk throughout CPBB in support of the Group's strategy. �� The Asia Risk Committee and the Africa and Middle East Risk Committee are chaired by the CRO for the respective region. These committees ensure the effective management of risk in the regions in support of the Group's strategy. �� The Investment Committee, chaired by representatives from the Risk function (CRO, Stressed Asset Group (SAG), Chief Credit Officer), ensures the optimised wind-down of the Group's existing direct investment activities in equities, quasi-equities (excluding mezzanine), funds and other alternative investments (excluding debt/debt-like instruments). This includes equity or quasi-equity stakes obtained as a result of restructuring of distressed debt, non-core equities and limited partner investments in funds linked to CCIB and managed by the Credit and Portfolio Management. �� The SC Ventures (SCV) Risk Committee, chaired by the CRO, SCV, receives authority directly from the GCRO and oversees the effective management of risk throughout SCV and the portfolio of subsidiaries operating under SCV, in support of the Group's strategy. �� The Climate Risk Management Committee (CRMC), chaired by the Global Head, ERM, oversees the effective implementation of the Group's Climate Risk Policy and workplan. This includes relevant regulatory requirements and covers Climate Risk related financial and non-financial risks. �� The Regulatory Interpretation Committee, co-chaired by the Global Head ERM and Group Head, Central Finance, provides oversight of material regulatory interpretations for the Capital Requirements Regulation (as amended by UK legislation), the Prudential Regulatory Authority (PRA) rulebook and other relevant regulations impacting Group regulatory capital calculations and reporting. The areas and risk types in scope are credit risk, traded risk, operational risk, large exposures, leverage ratio and securitisation. �� The Digital Assets Risk Committee, chaired by the Global Head, ERM, oversees effective risk management of the Digital Assets (DA) Risk profile of the Group. This includes providing oversight and subject matter expertise of DA Risk matters arising from DA-related activities across the PRTs. Group Asset and Liability Committee The Group Asset and Liability Committee (GALCO) is chaired by the GCFO. Its members are drawn principally from the Management Team. GALCO is responsible for determining the Group's balance sheet strategy and for ensuring that, in executing the Group's strategy, the Group operates within RA and regulatory requirements relating to capital, loss-absorbing capacity, liquidity, leverage, Interest Rate Risk in the Banking Book (IRRBB), Banking Book Basis Risk and Structural Foreign Exchange Risk. It also monitors the structural impact of decisions around sustainable finance, net zero and climate risk. GALCO is also responsible for ensuring that internal and external recovery planning requirements are met. Page 73 Principal risks We manage and control our PRTs through distinct RTFs, policies and RA. Credit Risk The Group defines Credit Risk as the potential for loss due to failure of a counterparty to meet its agreed obligations to pay the Group. Risk Appetite Statement The Group manages its credit exposures following the principle of diversification across products, geographies, client segments and industry sectors. Roles and responsibilities The Credit RTF for the Group are set and owned by the CROs for the respective business segments. The Credit Risk control function is the second line of defence responsible for independent challenge, monitoring and oversight of the Credit Risk management practices of the first line of defence. In addition, they ensure that credit risks are properly assessed and transparent; and that credit decisions are controlled in accordance with the Group's RA, credit policies and standards. Mitigation Segment-specific policies for CCIB and CPBB are in place for the management of Credit Risk. The Credit Policy for CCIB Client Coverage sets the principles that must be followed for the end-to-end credit process, including credit initiation, credit grading, credit assessment, product structuring, credit risk mitigation, monitoring and control, and documentation. The CPBB Credit Risk Management Policy sets the principles for the management of CPBB segments, for end-to-end credit process including credit initiation, credit assessment, documentation and monitoring for lending to these segments. The Group also sets out standards for the eligibility, enforceability, and effectiveness of Credit Risk mitigation arrangements. Potential credit losses from a given account, client or portfolio are mitigated using a range of tools, such as collateral, netting agreements, credit insurance, credit derivatives and guarantees. Risk mitigants are also carefully assessed for their market value, legal enforceability, correlation, and counterparty risk of the protection provider. Collateral is valued prior to drawdown and regularly thereafter as required, to reflect current market conditions, the probability of recovery and the period of time to realise the collateral in the event of liquidation. The Group also seeks to diversify its collateral holdings across asset classes and markets. Where guarantees, credit insurance, standby letters of credit or credit derivatives are used as Credit Risk mitigation, the creditworthiness of the protection provider is assessed and monitored using the same credit approval process applied to the obligor. Governance committee oversight At Board level, the BRC oversees the effective management of Credit Risk. At the executive level, the GRC oversees and appoints sub-committees for the management of all risk types including Credit Risk - in particular the CCIB Risk Committee, CPBB Risk Committee, Asia Risk Committee, and Africa and Middle East Risk Committee. The GRC also receives reports from other key Group Committees such as the Standard Chartered Bank Executive Risk Committee (in relation to Credit Risk). These committees are responsible for overseeing all risk profiles including Credit Risk of the Group within the respective business areas and regions. Meetings are held regularly, and the committees monitor all material Credit Risk exposures, as well as key internal developments and external trends, ensuring that appropriate action is taken where necessary. Page 74 Decision-making authorities and delegation The Credit RTF is the formal mechanism of delegating Credit Risk authorities cascading from the GCRO, as the Senior Manager of the Credit Risk PRT. The delegation is to individuals such as the business segments' CROs. Further delegation of credit authorities to individual credit officers may be undertaken based on risk-adjusted scales by customer type or portfolio. Credit Risk authorities are reviewed at least annually to ensure that they remain appropriate. In CCIB Client Coverage, the individuals delegating the Credit Risk authorities perform oversight by reviewing a sample of the limit applications approved by the delegated credit officers periodically. In CPBB, where credit decision systems and tools (e.g. application scorecards) are used for credit decisioning, such risk models are subject to performance monitoring and periodic validation. Where manual or discretionary credit decisions are applied, the individuals delegating the Credit Risk authorities perform periodic quality control assessments and assurance checks. Monitoring The Group regularly monitors credit exposures, portfolio performance, external trends and emerging risks that may impact risk management outcomes. Internal risk management reports that are presented to risk committees contain information on key political and economic trends across major portfolios and countries, portfolio delinquency and loan impairment performance. In CCIB Client Coverage, clients and portfolios are subject to additional review when they display signs of actual or potential weakness; for example, where there is a decline in the client's position within the industry, financial deterioration, a breach of covenants, or non-performance of an obligation within the stipulated period. Such accounts are subject to a dedicated process overseen by the Credit Issues Committee in the relevant countries where client account strategies and credit grades are re-evaluated. In addition, remedial actions, including placing accounts on early alert for increased scrutiny, exposure reduction, security enhancement or exiting the account could be undertaken. Certain accounts could also be transferred into the control management of the SAG, which is our specialist recovery unit for CCIB Client Coverage that operates independently from our main business. On an annual basis, senior members from Business and Risk participate in a more extensive portfolio review for certain corporate industry groups. In addition to a review of the portfolio information, this enhanced review (known as the industry portfolio review) incorporates industry outlook, key elements of business strategy, RA, credit profile and emerging/horizon risks. A condensed version of these industry portfolio reviews will also be shared with the CCIB Risk Committee. Any material in-country developments that may impact sovereign ratings are monitored closely by the Country Risk Team. The Country Risk Early Warning system, a triage-based risk identification system, categorises countries based on a forward-looking view of possible downgrades and the potential incremental risk-weighted assets (RWA) impact. For CPBB, exposures and collateral monitoring are performed at the counterparty and/or portfolio level across different client segments to ensure transactions and portfolio exposures remain within RA. Portfolio delinquency trends are also monitored. Accounts that are past due (or perceived as high risk but not yet past due) are subject to collections or recovery processes managed by a specialist independent function. In some countries, aspects of collections and recovery activities are outsourced. For discretionary lending portfolios, similar processes to those of CCIB client coverage are followed. In addition, an independent Credit Risk Review team (part of ERM function), performs judgement-based assessments of the Credit Risk profiles at various portfolio levels. They focus on selected countries and segments through deep dives, comparative analysis, and review and challenge of the basis of credit approvals. The review ensures that the evolving Credit Risk profiles of CCIB and CPBB are well managed within RA and policies, through forward-looking mitigating actions where necessary. Page 75 Credit rating and measurement All credit proposals are subject to a robust credit risk assessment. It includes a comprehensive evaluation of the client's credit quality, including willingness, ability, and capacity to repay. The primary lending consideration is based on the client's credit quality and the repayment capacity from operating cashflows for counterparties, and personal income or wealth for individual borrowers. The risk assessment gives due consideration to the client's liquidity and leverage position. Where applicable, the assessment includes a detailed analysis of the Credit Risk mitigation arrangements to determine the level of reliance on such arrangements as the secondary source of repayment in the event of a significant deterioration in a client's credit quality leading to default. Client income, net worth, and the liquidity of asset by class are considered for overall risk assessment for wealth lending. The availability of Wealth Lending credit limits is subject to the availability of qualified collateral. Risk measurement plays a central role, along with judgement and experience, in informing risk-taking and portfolio management decisions. We adopt the Advanced Internal Ratings Based (AIRB) approach under the Basel regulatory framework to calculate Credit Risk capital requirements. The Group has also established a global programme to assess capital requirements necessary to be implemented to meet the latest revised Basel III finalisation (referred to as Basel 3.1 or Basel IV) regulations. A standard alphanumeric Credit Risk grade system is used for CCIB Client Coverage. The numeric grades run from 1 to 14 and some of the grades are further sub-classified. Lower numeric credit grades are indicative of a lower likelihood of default. Credit grades 1 to 12 are assigned to performing customers, while credit grades 13 and 14 are assigned to non-performing or defaulted customers. CPBB internal ratings-based portfolios use application and behavioural credit scores that are calibrated to generate a probability of default. The Risk Decision Framework uses a credit rating system to define the portfolio/new booking segmentation, shape and decision criteria for the unsecured consumer business segment. AIRB models cover a substantial majority of our exposures and are used in assessing risks at a customer and portfolio level, setting strategy, and optimising our risk-return decisions. The Model Risk Committee approves material internal ratings-based risk measurement models. Prior to review and approval, all internal ratings based models are validated in detail by an independent model validation team. Reviews are also triggered if the performance of a model deteriorates materially against predetermined thresholds during the ongoing model performance monitoring process, which takes place between the annual validations. Credit Concentration Risk Credit Concentration Risk may arise from a single large exposure to a counterparty or a group of connected counterparties, or from multiple exposures across the portfolio that are closely correlated. Large exposure Concentration Risk is managed through concentration limits set for a counterparty or a group of connected counterparties based on control and economic dependence criteria. RA metrics are set at portfolio level and monitored to control concentrations, where appropriate, by industry, products, tenor, collateralisation level, top clients, and exposure to holding companies. Single name credit concentration thresholds are set by client group depending on credit grade, and by customer segment. For concentrations that are material at a Group level, breaches and potential breaches are monitored by the respective governance committees and reported to the GRC and BRC. Credit impairment ECL is determined for all financial assets that are classified as amortised cost or fair value through other comprehensive income. ECL is computed as an unbiased, probability-weighted provision determined by evaluating a range of plausible outcomes, the time value of money, and forward-looking information such as critical global or country-specific macroeconomic variables. For more detailed information on macroeconomic data feeding into IFRS 9 ECL calculations, please refer to the Risk profile section. Page 76 At the time of origination or purchase of a non-credit impaired financial asset (Stage 1), ECL represents cash shortfalls arising from possible default events up to 12 months into the future from the balance sheet date. ECL continues to be determined on this basis until there is a significant increase in the Credit Risk of the asset (Stage 2), in which case ECL is recognised for default events that may occur over the lifetime of the asset. If there is observed objective evidence of credit impairment or default (Stage 3), ECL continues to be measured on a lifetime basis. To provide the Board with oversight and assurance that the quality of assets originated are aligned to the Group's strategy, there is a RA metric to monitor Stage 1 and Stage 2 ECL from assets originated in the past 12 months. For CCIB, in line with the regulatory guidelines, Stage 3 ECL is considered when an obligor is more than 90 days past due on any amount payable to the Group, or the obligor(s) has symptoms of unlikeliness to pay its credit obligations in full as they fall due. These credit-impaired accounts are managed by SAG. In CPBB, loans to individuals and small businesses are considered credit-impaired as soon as any payment of interest or principal is 90 days overdue or they meet other objective evidence of impairment, such as bankruptcy, debt restructuring, fraud, or death. Financial assets are written off, in the amount that is determined to be irrecoverable, when they meet conditions set such that empirical evidence suggests the client is unlikely to meet their contractual obligations, or a loss of principal is reasonably expected. Estimating the amount and timing of future recoveries involves significant judgement and considers the assessment of matters such as future economic conditions and the value of collateral, for which there may not be a readily accessible market. The total amount of the Group's impairment provision is inherently uncertain, being sensitive to changes in economic and credit conditions across the regions in which the Group operates. For further details on sensitivity analysis of ECL under IFRS 9, please refer to the Risk profile section. Traded Risk The Group defines Traded Risk as the potential for loss resulting from activities undertaken by the Group in financial markets. Risk Appetite Statement The Group should control its financial markets and activities to ensure that market and counterparty credit risk losses do not cause material damage to the Group's franchise. Roles and responsibilities The Traded RTF, which sets the roles and responsibilities in respect of Traded Risk for the Group, is owned by the Global Head, Traded Risk Management (TRM). The business, acting as first line of defence, is responsible for the effective management of risks within the scope of its direct organisational responsibilities set by the Board. TRM is the second line control function that performs independent challenge, monitoring and oversight of the Traded Risk management practices of the first line of defence, predominantly Financial Markets and Treasury Markets. Mitigation The Traded RTF requires that Traded Risk limits be defined at a level appropriate to ensure that the Group remains within RA. All businesses incurring Traded Risk must comply with the Traded RTF. The Traded Risk Policy sets the principles that must be followed for the end-to-end traded risk management process, including limit setting, risk capture and measurement, limit monitoring and escalation, risk mitigation and stress testing. Policies and standards ensure that these Traded Risk limits are implemented. Policies are reviewed and approved by the Global Head, TRM periodically to ensure their ongoing effectiveness. Page 77 Governance committee oversight At Board level, the BRC oversees the effective management of Traded Risk. At the executive level, the GRC delegates responsibilities to the CCIB Risk Committee to oversee the Traded Risk profile of the Group. For subsidiaries, the authority for setting Traded Risk limits is delegated from the local board to the local risk committee, Country CRO and Traded Risk managers. Meetings are held regularly, and the committees monitor all material Traded Risk exposures, as well as key internal developments and external trends, and ensure that appropriate action is taken. Decision-making authorities and delegation The Traded RTF is the formal mechanism which delegates Traded Risk authorities cascading from the GCRO, as the Senior Manager of the Traded Risk Type, to the Global Head, TRM who further delegates authorities to named individuals. Traded Risk authorities are reviewed at least annually to ensure that they remain appropriate and to assess the quality of decisions taken by the authorised person. Key risk-taking decisions are made only by certain individuals with the skills, judgement, and perspective to ensure that the Group's control standards and risk-return objectives are met. Market Risk The Group uses a VaR model to measure the risk of losses arising from future potential adverse movements in market rates, prices, and volatilities. VaR is a quantitative measure of Market Risk that applies recent historical market conditions to estimate the potential future loss in market value that will not be exceeded in a set time period at a set statistical confidence level. VaR provides a consistent measure that can be applied across trading businesses and products over time and can be set against actual daily trading profit and loss outcomes. For day-to-day risk management, VaR is calculated as at the close of business, generally at UK time for expected market movements over one business day and to a confidence level of 97.5 per cent. Intra-day risk levels may vary from those reported at the end of the day. The Group applies two VaR methodologies: �� Historical simulation: this involves the revaluation of all existing positions to reflect the effect of historically observed changes in Market Risk factors on the valuation of the current portfolio. This approach is applied for general Market Risk factors and the majority of specific (credit spread) risk VaRs. �� Monte Carlo simulation: this methodology is similar to historical simulation but with considerably more input risk factor observations. These are generated by random sampling techniques, but the results retain the essential variability and correlations of historically observed risk factor changes. This approach is applied for some of the specific (credit spread) risk VaRs in relation to idiosyncratic exposures in credit markets. A one-year historical observation period is applied in both methods. As an input to regulatory capital, trading book VaR is calculated for expected movements over 10 business days and to a confidence level of 99 per cent. Some types of Market Risk are not captured in the regulatory VaR measure, and these Risks not in VaR are subject to capital add-ons. An analysis of VaR results in 2023 is available in the Risk profile section. Counterparty Credit Risk The Group uses a Potential Future Exposure (PFE) model to measure the credit exposure arising from the positive mark-to-market of traded products and future potential movements in market rates, prices, and volatilities. PFE is a quantitative measure of Counterparty Credit Risk that applies recent historical market conditions to estimate the potential future credit exposure that will not be exceeded in a set time period at a confidence level of 97.5 per cent. PFE is calculated for expected market movements over different time horizons based on the tenor of the transactions. The Group applies two PFE methodologies: simulation based, which is predominantly used, and an add-on based PFE methodology. Page 78 Underwriting The underwriting of securities and loans is in scope of the RA set by the Group for Traded Risk. Additional limits approved by the GCRO are set on the sectoral concentration, and the maximum holding period. The Underwriting Committee, under the authority of the GCRO, approves individual proposals to underwrite new security issues and loans for our clients. Monitoring TRM monitors the overall portfolio risk and ensures that it is within specified limits and therefore RA. Limits are typically reviewed twice a year. Most of the Traded Risk exposures are monitored daily against approved limits. Traded Risk limits apply at all times unless separate intra-day limits have been set. Limit excess approval decisions are based on an assessment of the circumstances driving the excess and of the proposed remediation plan. Limits and excesses can only be approved by a Traded Risk manager with the appropriate delegated authority. Treasury Risk The Group defines Treasury Risk as the potential for insufficient capital, liquidity, or funding to support our operations, the risk of reductions in earnings or value from movements in interest rates impacting banking book items and the potential for losses from a shortfall in the Group's pension plans. Risk Appetite Statement The Group should maintain sufficient capital, liquidity and funding to support its operations, and an interest rate profile ensuring that the reductions in earnings or value from movements in interest rates impacting banking book items does not cause material damage to the Group's franchise. In addition, the Group should ensure its pension plans are adequately funded. Roles and responsibilities The Global Head, ERM is responsible for the RTF for Treasury Risk under the ERMF. The Group Treasurer is supported by teams in Treasury and Finance to implement the Treasury RTF as the first line of defence and is responsible for managing Treasury Risk. At Regional and Country level, Chief Executive Officers (CEOs) supported by Regional and Country level Finance and Treasury teams are responsible for managing Treasury Risk as the first line of defence. Regional Treasury CROs and Country CROs for Treasury Risk (except Pension Risk) and Head of Pensions (for Pension Risk) are responsible for overseeing and challenging the first line of defence. Mitigation The Group develops policies to address material Treasury Risks and aims to maintain its risk profile within RA. In order to do this, metrics are set against Capital Risk, Liquidity and Funding Risk and IRRBB. Where appropriate, RA metrics are cascaded down to regions and countries in the form of Limits and Management Action Triggers. Capital Risk In order to manage Capital Risk, strategic business, and capital plans (Corporate Plan) are drawn up covering a five-year horizon which are approved by the Board annually. The plan ensures that adequate levels of capital, including loss absorbing capacity, and an efficient mix of the different components of capital are maintained to support our strategy and business plans. Treasury is responsible for the ongoing assessment of the demand for capital and the updating of the Group's capital plan. RA metrics including capital, leverage, Minimum Requirement for own funds and Eligible Liability (MREL) and double leverage are assessed within the Corporate Plan to ensure that the strategy can be achieved within risk tolerances. Page 79 Structural Foreign Exchange (FX) Risk The Group's structural FX position results from the Group's non-US dollar investment in the share capital and reserves of subsidiaries and branches. The FX translation gains, or losses, are recorded in the Group's translation reserves with a direct impact on the Group's Common Equity Tier 1 ratio. The Group contracts hedges to manage its structural FX position in accordance with the RA, and as a result the Group has taken net investment hedges to partially cover its exposure to certain non-US dollar currencies to mitigate the FX impact of such positions on its capital ratios. Liquidity and Funding Risk At Group, regional and country level we implement various business-as-usual and stress risk metrics to monitor and manage liquidity and funding risk. This ensures that the Group maintains an adequate and well-diversified liquidity buffer, as well as a stable funding base, and that it meets its liquidity and funding regulatory requirements. The approach to managing risks and the RA is assessed annually through the Internal Liquidity Adequacy Assessment Process. A funding plan is also developed for efficient liquidity projections to ensure that the Group is adequately funded in the required currencies, to meet its obligations and client funding needs. The funding plan is part of the overall Corporate Plan process aligning to the capital requirements. Interest Rate Risk in the Banking Book This risk arises from differences in the repricing profile, interest rate basis, and optionality of banking book assets liabilities and off-balance sheet items. IRRBB represents an economic and commercial risk to the Group and its capital adequacy. The Group monitors IRRBB against the RA. Pension Risk Pension Risk is the potential for loss due to having to meet an actuarially assessed shortfall in the Group's pension plans. Pension obligation risk to a firm arises from its contractual or other liabilities to or with respect to an occupational pension plan or other long-term benefit obligation. For a funded plan it represents the risk that additional contributions will need to be made because of a future shortfall in the funding of the plan. Or, for unfunded obligations, it represents the risk that the cost of meeting future benefit payments is greater than currently anticipated. The Pension Risk position against RA metric is reported to the GRC. This metric is calculated as the total capital requirement (including both Pillar 1 and Pillar 2A capital) in respect of Pension Risk, expressed as a number of basis points of RWA. Recovery and Resolution Planning In line with PRA requirements, the Group maintains a Recovery Plan which is a live document to be used by management in the event of stress in order to restore the Group to a stable and sustainable position. The Recovery Plan includes a set of recovery indicators, an escalation framework, and a set of management actions capable of being implemented during a stress. A Recovery Plan is also maintained within each major entity, and all recovery plans are subject to periodic fire-drill testing. As the UK resolution authority, the BoE is required to set a preferred resolution strategy for the Group. The BoE's preferred resolution strategy is whole Group single point of entry bail-in at the ultimate holding company level (Standard Chartered PLC) and would be led by the BoE. In support of this strategy, the Group has been developing a set of capabilities, arrangements, and resources to achieve the required outcomes. Following the BoE's first resolvability assessment and public disclosure for major UK firms in 2022, the second Resolvability Assessment Framework (RAF) cycle is under way. The Group submitted its Resolvability Assessment Report to the BoE and PRA on 6 October 2023 and is due to publish its resolvability public disclosure in June 2024. Governance committee oversight At the Board level, the BRC oversees the effective management of Treasury Risk. At the executive level, the GALCO ensures the effective management of risk throughout the Group in support of the Group's strategy, guides the Group's strategy on balance sheet optimisation and ensures that the Group operates within the RA and other internal and external requirements relating to Treasury Risk (except Pension Risk). The GRC and Regional Risk Committees provide oversight for Pension Risk. Page 80 Regional and country oversight resides with regional and country Asset and Liability Committees. Regions and countries must ensure that they remain in compliance with Group Treasury policies and practices, as well as local regulatory requirements. Decision-making authorities and delegation The GCFO has responsibility for capital, funding, and liquidity under the SMR. The GCRO has delegated the RFO responsibilities associated with Treasury Risk to the Global Head, ERM. The Global Head, ERM delegates second line of defence oversight and challenge responsibilities to the Treasury CRO and Country CROs for Capital Risk, Liquidity and Funding Risk and IRRBB, and to Head of Pensions for Pension Risk. Monitoring On a day-to-day basis, Treasury Risk is managed by Treasury, Finance and Country CEOs. The Group regularly reports and monitors Treasury Risk inherent in its business activities and those that arise from internal and external events. Internal risk management reports covering the balance sheet and the capital and liquidity position are presented to the relevant country Asset and Liability Committee. The reports contain key information on balance sheet trends, exposures against RA and supporting risk measures which enable members to make informed decisions around the overall management of the balance sheet. In addition, an independent Treasury CRO as part of ERM reviews the prudency and effectiveness of Treasury Risk management. Pension Risk is actively managed by the Head of Pensions and monitored by the Head of Country Risk, Scenario Analysis, Insurable and Pension Risk. The Head of Pensions ensures that accurate, complete, and timely updates on Pension Risk are shared with the Head of Country Risk, Scenario Analysis and Pension Risk, the Treasury CRO and the Global Head, ERM on a periodic basis. Operational and Technology Risk The Group defines Operational and Technology risk as the potential for loss resulting from inadequate or failed internal processes, technology events, human error, or from the impact of external events (including legal risks). Risk Appetite Statement The Group aims to control operational and technology risks to ensure that operational losses (financial or reputational), including any related to conduct of business matters, do not cause material damage to the Group's franchise. Changes to Third Party Risk With effect from January 2024, the Group has removed the IRT classification and formally included Third Party Risk as a sub risk under Operational and Technology Risk. Third Party Risk is defined as the potential for loss or adverse impact due to the failure to manage the onboarding, lifecycle and exit strategy of a third party. The Third Party Risk Management Policy and Standard, in conjunction with the respective PRT policies and standards, holistically set out the Group's minimum controls requirements for the identification, mitigation and management of risks arising from the use of Third Parties. Roles and responsibilities The Operational and Technology RTF sets the roles and responsibilities in respect of Operational and Technology risk for the Group. The Operational and Technology RTF defines the Group's Operational and Technology risk sub-types and sets standards for the identification, control, monitoring and treatment of risks. These standards are applicable across all PRTs and risk sub-types in the Operational and Technology RTF. The list of risk sub-types includes Execution Capability, Governance, Reporting and Obligations, Legal Enforceability, and Operational Resilience (including client service, change management, people management, safety and security, and technology risk). Page 81 The Operational and Technology RTF reinforces clear accountability for managing risk throughout the Group and delegates second line of defence responsibilities to identified SMEs. For each risk sub-type, the subject matter expert sets policies and standards for the organisation to comply with, and provides guidance, oversight, and challenge over the activities of the Group. They ensure that key risk decisions are only taken by individuals with the requisite skills, judgement, and perspective to ensure that the Group's risk-return objectives are met. Mitigation The Operational and Technology RTF sets out the Group's overall approach to the management of Operational and Technology risk in line with the Group's Operational and Technology RA. This is supported by the Risk and Control Self-Assessment (RCSA) which defines roles and responsibilities for the identification, control, and monitoring of risks (applicable to all PRTs, risk sub-types and IRTs). The RCSA is used to determine the design strength and reliability of each process, and requires: �� the recording of processes run by client segments, products, and functions into a process universe; �� the identification of potential failures in these processes and the related risks of such failures; �� an assessment of the impact of the identified risks based on a consistent scale; �� the design and monitoring of controls to mitigate prioritised risks; and �� assessments of residual risk and timely actions for elevated risks. Risks that exceed the Group's Operational and Technology RA require treatment plans to address underlying causes. Governance committee oversight At Board level, the BRC oversees the effective management of Operational and Technology risk. At the executive level, the GRC is responsible for the governance and oversight of Operational and Technology risk for the Group. The GRC, supported by the GNFRC, monitors the Group's Operational and Technology RA and relies on other key committees for the management of Operational and Technology risk. Regional business segments and functional committees also provide governance oversight of their respective processes and related Operational and Technology risk. In addition, Country Non-Financial Risk Committees (CNFRCs) oversee the management of Operational and Technology Risk at the country (or entity) level. In smaller countries, the responsibilities of the CNFRC may be exercised directly by the Country Risk Committee (for branches) or Executive Risk Committee (for subsidiaries). Decision-making authorities and delegation The GCRO has delegated the RFO responsibilities associated with the Operational and Technology RTF to the Global Head of Risk, Functions and Operational Risk (GHRFOR). The Operational and Technology RTF is the formal mechanism through which the delegation of Operational and Technology Risk authorities is made. The GHRFOR places reliance on the respective SMEs for second line of defence oversight of the relevant Operational and Technology risk sub-types through the Operational and Technology RTF. Monitoring To deliver services to clients and to participate in the financial services sector, the Group runs processes which are exposed to Operational and Technology risks. The Group prioritises and manages risks which are significant to clients and to the financial services sectors. Control indicators are regularly monitored to determine the Group's exposure to residual risk. The residual risk assessments and reporting of events form the Group's Operational and Technology Risk profile. The completeness of the Operational and Technology Risk profile ensures appropriate prioritisation and timeliness of risk decisions, including risk acceptances with treatment plans for risks that exceed acceptable thresholds. Page 82 The Board Risk Committee is informed on adherence to Operational and Technology RA through metrics reported for selected risks. These metrics are monitored, and escalation thresholds are devised based on the materiality and significance of the risk. These Operational and Technology RA metrics are consolidated on a regular basis and reported at relevant Group committees. This provides senior management with the relevant information to inform their risk decisions. Financial Crime Risk The Group defines Financial Crime Risk as the potential for legal or regulatory penalties, material financial loss or reputational damage resulting from the failure to comply with applicable laws and regulations relating to international sanctions, anti-money laundering and anti-bribery and corruption, and fraud. Risk Appetite Statement The Group has no appetite for breaches in laws and regulations related to financial crime, recognising that whilst incidents are unwanted, they cannot be entirely avoided. Roles and responsibilities The Group Head, CFCC has overall responsibility for Financial Crime Risk and is responsible for the establishment and maintenance of effective systems and controls to meet legal and regulatory obligations in respect of Financial Crime Risk. The Group Head, CFCC is the Group's Compliance and Money-Laundering Reporting Officer and performs the Financial Conduct Authority (FCA) controlled function and senior management function in accordance with the requirements set out by the FCA, including those set out in their handbook on systems and controls. As the first line of defence, the business process owners have responsibility for the application of policy controls and the identification and measurement of risks relating to financial crime. The business must communicate risks and any policy non-compliance to the second line of defence for review and approval following the model for delegation of authority. Mitigation There are four Group policies in support of the Financial Crime RTF: �� Group Anti-Bribery and Corruption Policy �� Group Anti-Money Laundering and Counter Terrorist Financing Policy �� Group Sanctions Policy �� Group Fraud Risk Management Policy The Group operates risk-based assessments and controls in support of its Financial Crime Risk programme, including (but not limited to): �� Group Risk Assessment: the Group monitors enterprise-wide Financial Crime Risks through the CFCC Risk Assessment process consisting of Financial Crime Risk and Compliance Risk assessments. The Financial Crime Risk assessment is a Group-wide risk assessment undertaken annually to assess the inherent Financial Crime Risk exposures and the associated processes and controls by which these exposures are mitigated. �� Financial Crime Surveillance: risk-based systems and processes to prevent and detect financial crime. The strength of controls is tested and assessed through the Group's Operational and Technology RTF, in addition to oversight by CFCC Assurance. Governance committee oversight Financial Crime Risk within the Group is governed by the GFCRC and the GNFRC for Fraud Risk. The GFCRC is responsible for ensuring effective oversight for operational risk relating to Financial Crime Risk. Board Level oversight of Financial Crime risk is performed by the Audit Committee and the BRC. Page 83 Decision-making authorities and delegation The Financial Crime RTF is the formal mechanism through which the delegation of Financial Crime Risk authorities is made. The Group Head, CFCC is the RFO for Financial Crime Risk under the Group's ERMF. Certain aspects of Financial Crime Compliance, second line of defence oversight and challenge, are delegated within the CFCC function. Approval frameworks are in place to allow for risk-based decisions on client onboarding, potential breaches of sanctions regulation or policy, situations of potential money laundering (and terrorist financing), bribery and corruption or internal and external fraud. Monitoring The Group monitors Financial Crime Risk compliance against a set of RA metrics. These metrics are reviewed periodically and reported regularly to the GFCRC, GNFRC, BRC, GRC, and relevant Board committees. Page 84 Compliance Risk The Group defines Compliance Risk as the potential for penalties or loss to the Group or for an adverse impact to our clients, stakeholders or to the integrity of the markets we operate in through a failure on our part to comply with laws, or regulations. Risk Appetite Statement The Group has no appetite for breaches in laws and regulations related to regulatory non-compliance; recognising that whilst incidents are unwanted, they cannot be entirely avoided. Roles and responsibilities The Group Head, CFCC as RFO for Compliance Risk provides support to senior management on regulatory and compliance matters by: �� providing interpretation and advice on CFCC regulatory requirements and their impact on the Group; and �� setting enterprise-wide standards for management of compliance risks through the establishment and maintenance of the Compliance RTF. The Group Head, CFCC also performs the FCA controlled function and senior management function of Compliance Risk oversight in accordance with the requirements set out by the FCA. All activities that the Group engages in must be designed to comply with the applicable laws and regulations in the countries in which we operate. The CFCC function provides second line of defence oversight and challenge of the first line of defence risk management activities that relate to Compliance Risk. Where Compliance Risk arises, or could arise, from failure to manage another PRT or sub-type, the Compliance RTF outlines that the responsibility rests with the respective RFO or control function to ensure that effective oversight and challenge of the first line of defence can be provided by the appropriate second line of defence function. Each of the assigned second line of defence functions have responsibilities, including monitoring relevant regulatory developments from Non-Financial Services regulators at both Group and country levels, policy development, implementation, and validation as well as oversight and challenge of first line of defence processes and controls. In addition, the remit of CFCC has been further clarified in 2023 in relation to Compliance risk and the boundary of responsibilities with other PRTs. Mitigation The CFCC function is responsible for the establishment and maintenance of policies, standards and controls to ensure continued legal and regulatory compliance, and the mitigation of Compliance Risk. In this, the requirements of the Operational and Technology RTF are followed to ensure a consistent approach to the management of processes and controls. The deployment of technological solutions to improve efficiencies and simplify processes has continued in 2023. These include launch of a new Regulatory Change Management System for Group regulatory obligations management, and further enhancement of the Ask Compliance platform. Governance committee oversight Both Compliance Risk and the risk of non-compliance with laws and regulations resulting from failed processes and controls are reported at the respective country, business, product, function, Risk and CFCC Non-Financial Risk Committees. Relevant matters, as required, are further escalated to the GNFRC and GRC. At Board level, oversight of Compliance Risk is primarily provided by the Audit Committee, and by the BRC for relevant issues. Whilst not a formal governance committee, the CFCC Oversight Group provides oversight of CFCC risks including the effective implementation of the Compliance RTF. The Regulatory Change Oversight Forum provides visibility and oversight of material and/or complex large-scale regulatory change emanating from Financial Services regulators impacting Non-Financial Risks. The CFCC Policy Council provides oversight, challenge and direction to Compliance and FCC Policy Owners on material changes and positions taken in CFCC-owned policies, including issues relating to regulatory interpretation and Group's CFCC RA. Page 85 Decision-making authorities and delegation The Compliance RTF is the formal mechanism through which the delegation of Compliance Risk authorities is made. The Group Head, CFCC has the authority to delegate second line of defence responsibilities within the CFCC function to relevant and suitably qualified individuals. Monitoring The monitoring of controls designed to mitigate the risk of regulatory non-compliance in processes is governed in line with the Operational and Technology RTF. The Group has a monitoring and reporting process in place for Compliance Risk, which includes escalation and reporting to Risk and CFCC Non-Financial Risk Committee, GNFRC, GRC, BRC, and relevant Board committees. Information and Cyber Security (ICS) Risk The Group defines ICS Risk as the risk to the Group's assets, operations, and individuals due to the potential for unauthorised access, use, disclosure, disruption, modification, or destruction of information assets and/or information systems. Risk Appetite Statement The Group aims to mitigate and control ICS risks to ensure that incidents do not cause the Bank material harm, business disruption, financial loss or reputational damage - recognising that whilst incidents are unwanted, they cannot be entirely avoided. Roles and responsibilities The Group's ICS RTF defines the roles and responsibilities of the first and second lines of defence in managing and governing ICS Risk across the Group. It emphasises business ownership and individual accountability. The Group Chief Transformation, Technology & Operations Officer (CTTO) has the first line of defence responsibility for ICS Risk and is accountable for the Group's ICS strategy. The Group Chief Information Security Officer (CISO) leads the development and execution of the ICS strategy. The first line of defence also manages all key ICS Risks, breaches and risk treatment plans. ICS Risk profile, RA breaches and remediation status are reported at Board and Executive committees, alongside business, function and country governance committees. The Group Chief Information Security Risk Officer (CISRO) function within Group Risk is the second line of defence and sets the framework, policy, standards, and methodology for assessing, scoring, and prioritising ICS Risks across the Group. The ICS Policy and standards are aligned to industry best practice models including the National Institute of Standards and Technology Cyber Security Framework and ISO 27001. This function has the responsibility for governance, oversight, and independent challenge of first line of defence's pursuit of the ICS strategy. Group ICS Risk Framework Strategy remains the responsibility of the ICS RFO (RFO), delegated from the GCRO to the Group CISRO. Mitigation ICS Risk is managed through the ICS RTF, comprising a risk assessment methodology and supporting policy, standards, and methodologies. These are aligned to industry recommended practice. We undertake an annual ICS Effectiveness Review to evaluate ICS Risk management practices in alignment with the ERMF. Governance committee oversight The BRC oversees the effective management of ICS Risk. The GRC has delegated authority to the GNFRC to ensure effective implementation of the ICS RTF. The GRC and GNFRC are responsible for oversight of ICS Risk profile and RA breaches. Sub-committees of the GNFRC have oversight of ICS Risk management arising from the businesses, countries and functions. Decision-making authorities and delegation The ICS RTF defines how the Group manages ICS Risk. The Group CISRO delegates authority to designated individuals through the ICS RTF, including at a business, function, region and country level. The Group CISO is responsible for implementing ICS Risk Management within the Group, and to cascade ICS risk management into the businesses, functions and countries to comply with the ICS RTF, policy, and standards. Page 86 Monitoring Group CISO performs a threat-led risk assessment to identify key threats, in-scope applications and key controls required to ensure the Group remains within RA. The ICS Risk profiles of all businesses, functions and countries are consolidated to present a holistic Group-level ICS Risk profile for ongoing monitoring. Mandatory ICS learning, phishing exercises and role-specific training support colleagues to monitor and manage this risk. During these reviews, the status of each risk is assessed against the Group's controls to identify any changes to impact and likelihood, which affects the overall risk rating. Group CISO and Group CISRO monitor the ICS Risk profile and ensure that breaches of RA are escalated to the appropriate governance committee or authority levels for remediation and tracking. A dedicated Group CISRO team supports this work by executing offensive security testing exercises, including vulnerability assessments and penetration tests, which show a wider picture of the Group's risk profile, leading to better visibility on potential 'in flight' risks. The Group also tracks remediation of security matters identified by external reviews such as the BoE CBEST Threat Intelligence-Led Assessment and the Hong Kong Monetary Authority's (HKMA) Intelligence-led Cyber Attack Simulation Testing (iCAST). Reputational and Sustainability Risk The Group defines Reputational and Sustainability Risk as the potential for damage to the franchise (such as loss of trust, earnings, or market capitalisation), because of stakeholders taking a negative view of the Group through actual or perceived actions or inactions, including a failure to uphold responsible business conduct as we strive to do no significant environmental and social harm through our client, third party relationships or our own operations. Risk Appetite Statement The Group aims to protect the franchise from material damage to its reputation by ensuring that any business activity is satisfactorily assessed and managed with the appropriate level of management and governance oversight. This includes a potential failure to uphold responsible business conduct in striving to do no significant environmental and social harm. Roles and responsibilities The Global Head, ERM is responsible as RFO for Reputational and Sustainability Risk under the Group's ERMF. Our Reputational and Sustainability RTF allocates responsibilities in a manner consistent with the three lines of defence model. In the first line of defence, the Chief Sustainability Officer (CSO) manages the overall Group Sustainability strategy and engagements. A dedicated Sustainable Finance solutions team is responsible for sustainable finance products and frameworks to help identify green and sustainable finance, and transition finance opportunities to aid our clients on their sustainability journey. The CSO team works with businesses to launch various sustainable finance products. Furthermore, the Environmental and Social Risk Management (ESRM) team provides dedicated advisory and challenge to businesses on the management of environmental and social risks and impacts arising from the Group's client relationships and transactions. In the second line of defence, the responsibility for Reputational and Sustainability Risk management is delegated to the Group Environmental, Social, and Corporate Governance (ESG) and Reputational Risk team, as well as CROs at region, country and client-business levels. They constitute the second line responsible to oversee and challenge the first line, which resides with the CEOs, business heads, product heads and function heads. The Group ESG and Reputational Risk team is responsible for establishing RA, framework and policies for managing Reputational and Sustainability risk, in line with emerging regulatory expectations across our markets. Page 87 Mitigation In line with the principles of Responsible Business Conduct and Do No Significant Harm, the Group deems Reputational and Sustainability Risk to be driven by: �� negative shifts in stakeholder perceptions, including shifts as a result of greenwashing claims, due to decisions related to clients, products, transactions, third parties and strategic coverage; �� potential material harm or degradation to the natural environment (environmental) through actions/inactions of the Group; and �� potential material harm to individuals or communities (social) risks through actions/inactions of the Group. The Group's Reputational Risk policy sets out the principal sources of Reputational Risk driven by negative shifts in stakeholder perceptions as well as responsibilities, control and oversight standards for identifying, assessing, escalating and effectively managing Reputational Risk. The assessment of risks associated with how individual client, transaction, product and strategic coverage decisions may affect perceptions of the organisation and its activities is based on explicit principles including, but not limited to, human rights and climate change. The assessment of stakeholder perception risk considers a variety of factors. Whenever potential for stakeholder concerns is identified, issues are subject to review and decision by both first and second lines of defence. The Group's Sustainability Risk policy sets out the requirements and responsibilities for managing environmental and social risks for the Group's clients, third parties and in our own operations. This includes management of greenwashing risks through the ongoing monitoring of Sustainable Finance products and transactions and clients throughout their lifecycle, from labelling to disclosures in line with emerging local and international regulatory obligations. �� Clients are expected to adhere to the minimum regulatory and compliance requirements, including criteria from the Group's Position Statements to sensitive sectors where environmental and social risks are heightened. The Group also defines the approach to certain specialist sectors where there are conflicting stakeholder views. �� Third parties such as suppliers must comply with the Group's Supplier Charter, which sets out the Group's expectations on ethics, anti-bribery and corruption, human rights, environmental, health and safety standards, labour and protection of the environment. The Group is committed to respecting universal human rights, and we assess our clients and suppliers against various international principles, as well as through our social safeguards. �� Within our operations, the Group seeks to minimise its impact on the environment and have targets to reduce energy, water and waste. We are committed to becoming Net Zero in our own operations by 2025. �� We rely on our frameworks to help the labelling of Sustainable Finance Use of Proceeds products and transactions as well as the classification of pureplay clients. Reputational and Sustainability Risk policies and standards are applicable to all Group entities. However, where local regulators impose additional requirements, these are complied with in addition to existing Group requirements. Governance committee oversight At Board level, the Culture and Sustainability Committee provides oversight for our Sustainability strategy while the BRC oversees Reputational and Sustainability Risk as part of the ERMF. The GRC provides executive level committee oversight and delegates the authority to ensure effective management of Reputational and Sustainability Risk to the GRRRC. The GRRRC's remit is to: �� Challenge, constrain and, if required, stop business activities where Reputational and Sustainability risks are not aligned with the Group's RA; �� Make decisions on Reputational and Sustainability Risk matters assessed as high or very high based on the Group's Reputational and Sustainability Risk Materiality Assessment Matrix, and matters escalated from the regions or client businesses; �� Provide oversight of material Reputational and Sustainability Risk and/or thematic issues arising from the potential failure of other risk types; Page 88 �� Identify TERs, as part of a dynamic risk scanning process; �� Monitor existing or new regulatory priorities. The Sustainable Finance Governance Committee, appointed by the GRRRC, provides leadership, governance, and oversight for delivering the Group's sustainable finance offering. This includes: �� Reviewing and supporting the Group's frameworks for Green and Sustainable Products, and Transition Finance for approval of GRRRC. These frameworks set out the guidelines for approval of products and transactions which carry the sustainable finance and/or transition finance label; �� Decision-making authority on the eligibility of a sustainable asset for any RWA relief; �� Approving sustainable finance and transition finance labels for products in addition to regular product management and governance; �� Reviewing the reputational risks arising from greenwashing claims related to Sustainable Finance products and services. The GNFRC has oversight of the control environment and effective management of Reputational Risk incurred when there are negative shifts in stakeholder perceptions of the Group due to failure of other PRTs. The regional and client-business risk committees provide oversight on the Reputational and Sustainability Risk profile within their remit. The CNFRC provides oversight of the Reputational and Sustainability Risk profile at a country level. Decision-making authorities and delegation The Global Head, ERM delegates risk acceptance authorities for stakeholder perception risks to designated individuals in the first line and second line or to committees such as the GRRRC via risk authority matrices. These risk authority matrices are tiered at country, regional, business segment or Group levels and are established for risks incurred in strategic coverage, clients, products, or transactions. For environmental and social risks, the ESRM team reviews and supports the risk assessments for clients and transactions and escalates to the Group ESG and Reputational Risk team as required. Monitoring Exposure to stakeholder perception risks arising from transactions, clients, products and strategic coverage is monitored through established triggers to prompt the right levels of appropriate risk-based consideration and assessment by the first line and escalations to the second line where necessary. Risk acceptance decisions and thematic trends are also reviewed on a periodic basis. Exposure to Sustainability Risk is monitored through triggers embedded within the first line of defence processes. The Environmental and Social Risks are considered for clients and transactions via the environmental and social risk assessments and for vendors in our supply chain through the Modern Slavery questionnaires. Furthermore, monitoring and reporting on the RA metrics ensures that there is appropriate oversight by the MT and Board over performance and breaches of thresholds across key metrics. Model Risk The Group defines Model Risk as potential loss that may occur because of decisions or the risk of mis-estimation that could be principally based on the output of models due to errors in the development, implementation, or use of such models. Risk Appetite Statement The Group has no appetite for material adverse implications arising from misuse of models or errors in the development or implementation of models; whilst accepting some model uncertainty. Page 89 Roles and responsibilities The Global Head, ERM is the RFO for Model Risk under the Group's ERMF. Responsibility for the oversight and implementation of the Model RTF is delegated to the Global Head, Model Risk Management. The Model RTF sets out clear accountability and roles for Model Risk management through the three lines of defence model. First line of defence ownership of Model Risk resides with Model Sponsors, who are business or function heads and assign a Model Owner and provide oversight of Model Owner activities. Model Owners are accountable for the model development process, represent model users, are responsible for the overall model design process, coordinate the submission of models for validation and approval, and ensure appropriate implementation and use. Model Developers are responsible for the development of models and are responsible for documenting and testing the model in accordance with Policy requirements, and for engaging with Model Users. Second line of defence oversight is provided by Model Risk Management, which comprises Group Model Validation (GMV) to independently review and grade models, and the Model Risk Policy and Governance team, which provides oversight of model risk activities and reports to senior management via respective committees. The Group adopts an industry standard model definition as specified in the Group Model Risk Policy, together with a scope of applicability represented by defined model family types as detailed within the Model Risk Framework. Model Owners are accountable for ensuring that all models under their purview have been independently validated by GMV. Models are validated before use and then on an ongoing basis, with schedule determined by the perceived level of model risk associated with the model, or more frequently if there are specific regulatory requirements. The Model Risk Framework is cascaded to in-scope countries by way of local addendum or local framework documentation, along with specific responsibilities of the Country Model RFO. In-scope countries are selected with reference to regulatory capital requirements with credit risk (AIRB), counterparty credit risk Internal Model Method (IMM), or market risk Internal Model Approach (IMA) permissions for use of models for regulatory capital calculations; and countries where regulators have stipulated specific model risk requirements. Additional criteria, including financial materiality, regulatory importance, presence of important business services or critical economic functions are also considered. The main responsibilities of Country Model RFO are to ensure model usage is correctly identified, a suitable local governance process is established, and fundamental model risk training is provided for respective country stakeholders. Based on respective levels of regulatory expectations regarding Model Risk, a tiering approach is adopted to provide appropriate risk-based levels of depth and rigour of the associated requirements. Mitigation The Model Risk policy and standards define requirements for model development and validation activities, including regular model performance monitoring. Any model issues or deficiencies identified through the validation process are mitigated through model monitoring, model overlays and/or a model redevelopment plan, which undergoes robust review, challenge, and approval. Operational controls govern all Model Risk-related processes, with regular risk assessments performed to assess appropriateness and effectiveness of those controls, in line with the Operational and Technology RTF, with remediation plans implemented where necessary. Governance committee oversight At Board level, the BRC exercises oversight of Model Risk within the Group. At the executive level, the GRC has appointed the Model Risk Committee to ensure effective measurement and management of Model Risk. Sub-committees such as the Credit Model Assessment Committee, Traded Risk Model Assessment Committee and Financial Crime Compliance Model Assessment Committee oversee their respective in-scope models and escalate material Model Risks to the Model Risk Committee. In parallel, business and function-level risk committees provide governance oversight of the models used in their respective processes. Page 90 Decision-making authorities and delegation The Model RTF is the formal mechanism through which the delegation of Model Risk authorities is made. The Global Head, ERM delegates authorities to designated individuals or Policy Owners through the Model RTF. The second line of defence ownership for Model Risk at country level is delegated to Country CROs at the applicable branches and subsidiaries. The Model Risk Committee is responsible for approving models for use. Model approval authority is also delegated to the Credit Model Assessment Committee, Traded Risk Model Assessment Committee, Financial Crime Compliance Model Assessment Committee, and individual designated model approvers for less material models. Monitoring The Group monitors Model Risk via a set of RA metrics. Adherence to Model RA and any threshold breaches are reported to the BRC, GRC and Model Risk Committee. These metrics and thresholds are reviewed twice per year to ensure that threshold calibration remains appropriate, and the themes adequately cover the current risks. Models undergo regular monitoring based on their level of perceived Model Risk, with monitoring results and breaches presented to Model Risk Management and delegated model approvers. Model Risk Management produces Model Risk reports covering the model landscape, which include performance metrics, identified model issues and remediation plans. These are presented for discussion at the Model Risk governance committees on a regular basis. Climate Risk (Oversight has moved to Reputational and Sustainability Risk with effect from January 2024) With effect from January 2024, the Group has removed the IRT classification. Climate Risk is defined as the potential for financial loss and non-financial detriments arising from climate change and society's response to it. We are developing methodologies to identify, measure and manage the physical and transition risks that we are exposed to through our own operations, our suppliers, our clients, and the markets we operate in. Risk Appetite Statement The Group aims to measure and manage financial and non-financial risks arising from climate change, and reduce emissions related to our own activities and those related to the financing of clients in alignment with the Paris Agreement. Roles and responsibilities The GCRO has the ultimate second line of defence and responsibility for Climate Risk, with support by the Global Head, ERM who has day-today oversight and central responsibility for second line of defence Climate Risk activities. As Climate Risk is embedded into the relevant PRTs, second line of defence responsibilities lie with those RFOs (at Group, regional and country level), with SME support from the central Climate Risk team. Mitigation We have completed c.4,100 Climate Risk Assessments (CRAs) in 2023 (c.85 - 90 per cent of the CCIB corporate portfolio limits), which measures transition risk of our clients. Concentration of Black and Red rated clients remain within proposed RA levels at 6 per cent. Linkages to Credit Underwriting Principles have been finalised for four sectors (Oil and Gas (O&G), Shipping, Commercial Real Estate (CRE) and Mining), including improved climate-related analysis, portfolio-level caps and additional data gathering measures. A key focus area going forward is to embed Climate Risk and net zero targets into business and credit decisions. To enable this, we have established a Net Zero Climate Risk Working Forum to facilitate discussions on account plans for high Climate Risk and net zero divergent clients. As of September 2023, we have assessed physical risk for 79 per cent and transition risk for 54 per cent of our CPBB book. The focus for Operational and Technology Risk has been to assess physical risks for our properties and data centres, as well as third parties. Concentration of top corporate liquidity providers to high transition risk and low levels of mitigation is being monitored. Page 91 Governance committee oversight Board level oversight is exercised through the BRC, with regular updates on Climate Risk. At an executive level, the GRC has appointed the Climate Risk Management Committee (CRMC), which meets at least six times a year to oversee the implementation of Climate Risk workplans and monitoring the Group's Climate Risk profile. In 2023, we have strengthened country and regional governance oversight for the Climate Risk profile across our key markets by cascading identified RA metrics, and rolling out climate risk management information. Decision-making authorities and delegation The Global Head, ERM is supported by a Climate Risk team within the ERM function. The Global Head, ESG and Reputational Risk is responsible for executing the delivery of the Climate Risk workplan which will define decision-making authorities and delegations across the Group. Monitoring The Climate RA Statement is approved and reviewed annually by the Board, following the recommendation of the BRC. The Group has developed its first-generation Climate Risk reporting and Board/MT Level RA metrics and these will continue to be enhanced in 2024. Management information and RA metrics are also being progressively rolled out at the regional and country level. Management information is reviewed at a quarterly frequency and any breaches in RA are reported to the GRC and BRC. Digital Assets Risk With effect from January 2024, the Group has removed the IRT classification. The Group recognises Digital Assets (DA) as an asset class which is managed under the ERMF. DA Risk is defined as the potential for regulatory penalties, financial loss and/or reputational damage to the Group resulting from DA-related activities arising from the Group's businesses across clients, products, investments and projects. Risk Appetite Statement As DA Risk manifests through the various PRTs, the individual RA statements for each PRT take account of the risks specific to DAs. Roles and responsibilities Senior managers within the first line of defence are responsible for the overall management of DA risks, initiatives and exposures that may arise within their business segments. The GCRO has the second line of defence responsibility for defining the Group's framework for managing DA-related risks, through the Digital Assets Risk Management Approach (DARMA). The GCRO is supported by the Global Head, ERM and the Global Head, DA Risk Management, who have day-to-day responsibility for second line of defence oversight of the DARMA. As DA Risk management is embedded into the relevant PRTs, RFOs and dedicated SMEs across the PRTs have second line of defence responsibilities of DA Risks for their respective PRTs. Mitigation The Group deploys a DA Risk management policy (DA Policy) to define the incremental risk management requirements for DA-related activities under the DARMA. The respective PRTs then include specific risk mitigation requirements within the relevant processes, policies and standards for their PRTs. DA Risk Assessments are conducted on certain higher-risk DA-related projects and products. These risk assessments detail the specific inherent risks, residual risks, controls and mitigants across the PRTs, and are reviewed and supported by the respective businesses, RFOs and DA SMEs. Page 92 Governance committee oversight Board level oversight is exercised through the BRC, and DA Risk updates are provided to the Board and BRC, as requested. At the executive level, the GRC oversees the risk management of DA. The GCRO has also appointed a dedicated DA Risk Committee (DRC) consisting of senior business representatives, RFOs and DA SMEs across the Group. The DRC meets a minimum of four times per year to review and assess the risk assessments related to DA Projects and Products, discuss development and implementation of the DARMA, and to provide structured governance around DA Risk. Decision-making authorities and delegation The Global Head, ERM is supported by a centralised DA Risk team within the ERM Function and is responsible for the design and maintenance of the DARMA. Decision-making authorities and delegation are defined in the DA Policy, outlining the incremental responsibilities and the embedding of risk management within associated policies and risk artefacts. The businesses are responsible for implementation of the DARMA and respective business governance forums, PRT RFOs and DA SMEs utilise decision-making authorities granted to them by their respective businesses, PRTs or in individual capacities to assess and approve DA activities and exposures that may give rise to risk. DA Risk follows prescribed robust risk management practices across the PRTs, with specific expertise applied from DA experts. Risk management practices are informed by the "Dear CEO" letters published by the PRA and the FCA in June 2018, with updated notices in June 2022. Further guidance from the recent publication of the BCBS d545 on the prudential treatment of crypto assets, which will be in effect from January 2025, has refined the risk management approach. DA is a developing area which will continue to mature and stabilise over time as the technology, together with its use in financial services and associated research, become more established. Monitoring DA Risks are monitored through the existing Group RA metrics across the PRTs. In addition, specific DA Risk Management Monitoring level metrics are reviewed and monitored by the relevant individual PRTs. DA risk decisions relating to other PRTs are taken within the authorities for the respective PRT. Page 93 Capital review The Capital review provides an analysis of the Group's capital and leverage position, and requirements. Capital summary The Group's capital, leverage and minimum requirements for own funds and eligible liabilities (MREL) position is managed within the Board-approved risk appetite. The Group is well capitalised with low leverage and high levels of loss-absorbing capacity. 2023 2022 CET1 capital 14.1% 14.0% Tier 1 capital 16.3% 16.6% Total capital 21.2% 21.7% Leverage ratio 4.7% 4.8% MREL ratio 33.3% 32.1% Risk-weighted assets (RWA) $million 244,151 244,711 The Group's capital, leverage and MREL positions were all above current requirements and Board-approved risk appetite. For further detail see the Capital section in the Standard Chartered PLC Pillar 3 Disclosures for FY 2023. The Group's CET1 capital increased 10 basis points to 14.1 percent of RWA since FY2022. Profits, gains from the aviation leasing sale, movements in FVOCI and RWA optimisations were partly offset by distributions (including ordinary share buybacks of $2.0 billion during the year), impairments of the Group's investment in Bohai, lower FX translation reserves and an increase in regulatory deductions. The PRA updated the Group's Pillar 2A requirement during Q4 2023. As at 31 December 2023 the Group's Pillar 2A was 3.8 percent of RWA, of which at least 2.1 per cent must be held in CET1 capital. The Group's minimum CET1 capital requirement was 10.5 per cent at 31 December 2023. The UK countercyclical buffer increased to 2.0 per cent which impacts Group CET1 minimum requirement by approximately 8 basis points from July 2023. The Group CET1 capital ratio at 31 December 2023 reflects the share buy-backs of $2 billion completed during the year. The CET1 capital ratio also includes an accrual for the FY 2023 dividend. The Board has recommended a final dividend for FY 2023 of $560 million or 21 cents per share resulting in a full year 2023 dividend of 27 cents per share, a 50 percent increase on the 2022 dividend. In addition, the Board has announced a further share buyback of $1 billion, the impact of this will reduce the Group's CET1 capital by around 40 basis points in the first quarter of 2024. The Group expects to manage CET1 capital dynamically within our 13-14 per cent target range, in support of our aim of delivering future sustainable shareholder distributions. The Group's MREL requirement as at 31 December 2023 was 27.4 per cent of RWA. This is composed of a minimum requirement of 23.5 per cent of RWA and the Group's combined buffer (comprising the capital conservation buffer, the G-SII buffer and the countercyclical buffer). The Group's MREL ratio was 33.3 per cent of RWA and 9.6 per cent of leverage exposure at 31 December 2023. During 2023, the Group successfully raised $8.1 billion of MREL eligible securities from its holding company, Standard Chartered PLC. Issuance was entirely in callable senior debt. The Group is a G-SII, with a 1.0 per cent G-SII CET1 capital buffer. The Standard Chartered PLC G-SII disclosure is published at: sc.com/en/investors/financial-results. Page 94 Capital base1 (audited) 2023 $million 2022 $million CET1 capital instruments and reserves Capital instruments and the related share premium accounts 5,321 5,436 Of which: share premium accounts 3,989 3,989 Retained earnings2 24,930 25,154 Accumulated other comprehensive income (and other reserves) 9,171 8,165 Non-controlling interests (amount allowed in consolidated CET1) 217 189 Independently audited year-end profits 3,542 2,988 Foreseeable dividends (768) (648) CET1 capital before regulatory adjustments 42,413 41,284 CET1 regulatory adjustments Additional value adjustments (prudential valuation adjustments) (730) (854) Intangible assets (net of related tax liability) (6,128) (5,802) Deferred tax assets that rely on future profitability (excludes those arising from temporary differences) (41) (76) Fair value reserves related to net losses on cash flow hedges (91) 564 Deduction of amounts resulting from the calculation of excess expected loss (754) (684) Net gains on liabilities at fair value resulting from changes in own credit risk (100) 63 Defined-benefit pension fund assets (95) (116) Fair value gains arising from the institution's own credit risk related to derivative liabilities (116) (90) Exposure amounts which could qualify for risk weighting of 1,250% (44) (103) Other regulatory adjustments to CET1 capital3 - (29) Total regulatory adjustments to CET1 (8,099) (7,127) CET1 capital 34,314 34,157 Additional Tier 1 capital (AT1) instruments 5,512 6,504 AT1 regulatory adjustments (20) (20) Tier 1 capital 39,806 40,641 Tier 2 capital instruments 11,965 12,540 Tier 2 regulatory adjustments (30) (30) Tier 2 capital 11,935 12,510 Total capital 51,741 53,151 Total risk-weighted assets (unaudited) 244,151 244,711 1 Capital base is prepared on the regulatory scope of consolidation 2 Retained earnings includes IFRS9 capital relief (transitional) of nil (2022: $106 million) 3 Other regulatory adjustments to CET1 capital includes Insufficient coverage for non-performing exposures of nil (2022: $(29) million) Page 95 Movement in total capital (audited) 2023 $million 2022 $million CET1 at 1 January 34,157 38,362 Ordinary shares issued in the period and share premium - - Share buy-back (2,000) (1,258) Profit for the period 3,542 2,988 Foreseeable dividends deducted from CET1 (768) (648) Difference between dividends paid and foreseeable dividends (372) (301) Movement in goodwill and other intangible assets (326) (1,410) Foreign currency translation differences (477) (1,892) Non-controlling interests 28 (12) Movement in eligible other comprehensive income 464 (1,224) Deferred tax assets that rely on future profitability 35 74 Increase in excess expected loss (70) (104) Additional value adjustments (prudential valuation adjustment) 124 (189) IFRS 9 transitional impact on regulatory reserves including day one (106) (146) Exposure amounts which could qualify for risk weighting of 1,250% 59 (67) Fair value gains arising from the institution's own credit risk related to derivative liabilities (26) (30) Others 50 14 CET1 at 31 December 34,314 34,157 AT1 at 1 January 6,484 6,791 Net issuances (redemptions) (1,000) 241 Foreign currency translation difference and others 8 9 Excess on AT1 grandfathered limit (ineligible) - (557) AT1 at 31 December 5,492 6,484 Tier 2 capital at 1 January 12,510 12,491 Regulatory amortisation 1,416 778 Net issuances (redemptions) (2,160) (1,098) Foreign currency translation difference 146 (337) Tier 2 ineligible minority interest 19 102 Recognition of ineligible AT1 - 557 Others 4 17 Tier 2 capital at 31 December 11,935 12,510 Total capital at 31 December 51,741 53,151 The main movements in capital in the period were: �� CET1 capital increased by $0.2 billion as retained profits of $3.5 billion, movement in FVOCI of $0.6bn were partly offset by share buy-backs of $2.0 billion, distributions paid and foreseeable of $1.1 billion, foreign currency translation impact of $0.5 billion and an increase in regulatory deductions and other movements of $0.3bn. �� AT1 capital decreased by $1.0 billion following the redemption of $1.0 billion of 7.75 per cent securities. �� Tier 2 capital decreased by $0.6 billion due to the redemption of $2.2 billion of Tier 2 during the year partly offset by the reversal of regulatory amortisation and foreign currency translation impact. Page 96 Risk-weighted assets by business 2023 Credit risk $million Operational risk $million Market risk $million Total risk $million Corporate, Commercial & Institutional Banking 102,675 18,083 21,221 141,979 Consumer, Private & Business Banking 42,559 8,783 - 51,342 Ventures 1,885 35 3 1,923 Central & Other items 44,304 960 3,643 48,907 Total risk-weighted assets 191,423 27,861 24,867 244,151 2022 Credit risk $million Operational risk $million Market risk $million Total risk $million Corporate, Commercial & Institutional Banking 110,103 17,039 16,440 143,582 Consumer, Private & Business Banking 42,091 8,639 - 50,730 Ventures 1,350 6 2 1,358 Central & Other items 43,311 1,493 4,237 49,041 Total risk-weighted assets 196,855 27,177 20,679 244,711 Risk-weighted assets by geographic region 2023 $million 2022 $million Asia 155,995 150,816 Africa & Middle East 38,393 40,716 Europe & Americas 46,106 50,174 Central & Other items 3,657 3,005 Total risk-weighted assets 244,151 244,711 Movement in risk-weighted assets Credit risk Operational risk $million Market risk $million Total risk $million Corporate, Commercial & Institutional Banking $million Consumer, Private & Business Banking $million Ventures $million Central & Other items $million Total $million At 31 December 2021 125,813 42,731 756 50,288 219,588 27,116 24,529 271,233 At 1 January 2022 125,813 42,731 756 50,288 219,588 27,116 24,529 271,233 Assets growth & mix (13,213) (985) 594 (10,033) (23,637) - - (23,637) Asset quality (4,258) 431 - 7,344 3,517 - - 3,517 Risk-weighted assets efficiencies - - - - - - - - Model Updates 4,329 1,420 - - 5,749 - (1,000) 4,749 Methodology and policy changes 2,024 85 - 93 2,202 - 1,500 3,702 Acquisitions and disposals - - - - - - - - Foreign currency translation (4,883) (1,591) - (3,376) (9,850) - - (9,850) Other, Including non-credit risk movements 291 - - (1,005) (714) 61 (4,350) (5,003) At 31 December 2022 110,103 42,091 1,350 43,311 196,855 27,177 20,679 244,711 Assets growth & mix (4,424) 728 535 1,183 (1,978) - - (1,978) Asset quality (391) 390 - 2,684 2,683 - - 2,683 Risk-weighted assets efficiencies - - - (688) (688) - - (688) Model Updates (597) (151) - (151) (899) - 500 (399) Methodology and policy changes - (196) - - (196) - (800) (996) Acquisitions and disposals (1,630) - - - (1,630) - - (1,630) Foreign currency translation (386) (303) - (2,035) (2,724) - - (2,724) Other, Including non-credit risk movements - - - - - 684 4,488 5,172 At 31 December 2023 102,675 42,559 1,885 44,304 191,423 27,861 24,867 244,151 Page 97 Movements in risk-weighted assets RWA decreased by $0.6 billion, or 0.2 per cent from 31 December 2022 to $244.2 billion. This was due to a decrease in Credit Risk RWA of $5.4 billion, an increase in Market Risk RWA of $4.2 billion and an increase in Operational Risk RWA of $0.7 billion. Corporate, Commercial & Institutional Banking Credit Risk RWA decreased by $7.4 billion, or 6.7 per cent from 31 December 2022 to $102.7 billion mainly due to: �� $4.4 billion decrease from changes in asset growth & mix of which: - $10.3 billion decrease from optimisation actions including reduction in lower returning portfolios - $5.9 billion increase from asset balance growth across the rest of the portfolio �� $1.6 billion decrease from sale of Aviation business �� $0.9 billion decrease from industry-wide regulatory changes to align IRB model performance �� $0.4 billion decrease from foreign currency translation �� $0.4 billion decrease from asset quality movements, reflecting client upgrades in Asia, Europe & Americas, partially offset by sovereign downgrades in Africa & Middle East �� $0.3 billion increase from model changes in Financial Markets and Lending Consumer, Private & Business Banking Credit Risk RWA increased by $0.5 billion, or 1.1 per cent from 31 December 2022 to $42.6 billion mainly due to: �� $0.7 billion increase from changes in asset growth and mix, mainly from Asia �� $0.4 billion increase due to deterioration in asset quality mainly in Asia �� $0.3 billion decrease from foreign currency translation �� $0.2 billion decrease from methodology change relating to an unsecured lending portfolio in Africa & Middle East �� $0.1 billion decrease from industry-wide regulatory changes to align IRB model performance Ventures Ventures is comprised of Mox Bank Limited, Trust Bank and SC Ventures. Credit Risk RWA increased by $0.5 billion, or 39.7 per cent from 31 December 2022 to $1.9 billion from asset balance growth, mainly from SC Ventures. Central & Other items Central & Other items RWA mainly relate to the Treasury Markets liquidity portfolio, equity investments and current & deferred tax assets. Credit Risk RWA increased by $1 billion, or 2.3 per cent from 31 December 2022 to $44.3 billion mainly due to: �� $2.7 billion increase due to deterioration in asset quality mainly from sovereign downgrades in Africa & Middle East �� $1.2 billion increase from changes in asset growth & mix �� $2.0 billion decrease from foreign currency translation �� $0.7 billion decrease from RWA efficiencies �� $0.2 billion decrease from model changes in Treasury Markets Page 98 Market Risk Total Market Risk RWA increased by $4.2 billion, or 20.3 per cent from 31 December 2022 to $24.9 billion due to: �� $2.4 billion increase in Standardised Approach (SA) RWA driven by higher Specific Interest Rate Risk relating to the traded credit portfolio, offset by lower net Structural FX positions �� $2.1 billion increase in Internal Models Approach (IMA) RWA due to increased positions and increased market volatility �� $0.5 billion increase in IMA RWA due to introduction of a new VaR model to address the rise in VaR backtesting exceptions in 2022 �� $0.8 billion decrease in IMA RWA due to reduction in the IMA multiplier with fewer VaR backtesting exceptions in 2023 than in 2022 Operational Risk Operational Risk RWA increased by $0.7 billion, or 2.5 per cent from 31 December 2022 to $27.9 billion, mainly due to a marginal increase in average income as measured over a rolling three-year time horizon for certain products. Leverage ratio The Group's UK leverage ratio, which excludes qualifying claims on central banks was 4.7 per cent, which is above the current minimum requirement of 3.7 per cent. The leverage ratio was 6 basis points lower than FY22. Tier1 Capital decreased by $0.8 billion as CET1 capital increased by $0.2 billion and was more than offset by the redemption of $1 billion 7.75 per cent AT1 securities. Leverage exposure decreased by $7.2 billion benefiting from an increase in deduction for central bank claims of $19.6 billion, a decrease in securities financing transactions and add-on of $1.3 billion, partly offset by an increase in Other Assets of $7.2 billion, Off-balance sheet items of $4.5 billion and Derivatives of $2 billion. Leverage ratio 2023 $million 2022 $million Tier 1 capital 39,806 40,641 Derivative financial instruments 50,434 63,717 Derivative cash collateral 10,337 12,515 Securities financing transactions (SFTs) 97,581 89,967 Loans and advances and other assets 664,492 653,723 Total on-balance sheet assets 822,844 819,922 Regulatory consolidation adjustments1 (92,709) (71,728) Derivatives adjustments Derivatives netting (39,031) (47,118) Adjustments to cash collateral (9,833) (10,640) Net written credit protection 1,359 548 Potential future exposure on derivatives 42,184 35,824 Total derivatives adjustments (5,321) (21,386) Counterparty risk leverage exposure measure for SFTs 6,639 15,553 Off-balance sheet items 123,572 119,049 Regulatory deductions from Tier 1 capital (7,883) (7,099) Total exposure measure excluding claims on central banks 847,142 854,311 Leverage ratio excluding claims on central banks (%) 4.7% 4.8% Average leverage exposure measure excluding claims on central banks 853,968 864,605 Average leverage ratio excluding claims on central banks (%) 4.6% 4.7% Countercyclical leverage ratio buffer 0.1% 0.1% G-SII additional leverage ratio buffer 0.4% 0.4% 1 Includes adjustment for qualifying central bank claims and unsettled regular way trades Page 99 Statement of directors' responsibilities The directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law: �� The Group financial statements have been prepared in accordance with UK-adopted International Accounting Standards and International Financial Reporting Standards as adopted by the European Union; �� The Company financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards as applied in accordance with section 408 of the Companies Act 2006; and �� The financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Under company law the 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 their profit or loss for that period. In preparing each of the Group and Company financial statements, the directors are required to: �� Select suitable accounting policies and then apply them consistently; �� Make judgements and estimates that are reasonable, relevant and reliable; �� State whether they have been prepared in accordance with UK-adopted International Accounting Standards and International Financial Reporting Standards as adopted by the European Union; �� Assess the Group and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and �� Use the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control1 as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements differ from legislation in other jurisdictions. Page 100 Responsibility statement of the directors in respect of the annual financial report We confirm that to the best of our knowledge: The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the emerging risks and uncertainties that they face We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy. By order of the Board Diego De Giorgi Group Chief Financial Officer 23 February 2024 Page 101 Shareholder information Important notices Forward-looking statements The information included in this document may contain 'forward-looking statements' based upon current expectations or beliefs as well as statements formulated with assumptions about future events. Forward-looking statements include, without limitation, projections, estimates, commitments, plans, approaches, ambitions and targets (including, without limitation, ESG commitments, ambitions and targets). Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'aim', 'continue' or other words of similar meaning to any of the foregoing. Forward-looking statements may also (or additionally) be identified by the fact that they do not relate only to historical or current facts. By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Readers should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause the Group's actual results and its plans and objectives to differ materially from those expressed or implied in forward-looking statements. The factors include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions, or in future exchange and interest rates; changes in environmental, geopolitical, social or physical risks; legal, regulatory and policy developments, including regulatory measures addressing climate change and broader sustainability-related issues; the development of standards and interpretations, including evolving requirements and practices in ESG reporting; the ability of the Group, together with governments and other stakeholders to measure, manage, and mitigate the impacts of climate change and broader sustainability-related issues effectively; risks arising out of health crises and pandemics; risks of cyber-attacks, data, information or security breaches or technology failures involving the Group; changes in tax rates or policy; future business combinations or dispositions; and other factors specific to the Group, including those identified in this Annual Report and financial statements of the Group. To the extent that any forward-looking statements contained in this document are based on past or current trends and/or activities of the Group, they should not be taken as a representation that such trends or activities will continue in the future. No statement in this document is intended to be, nor should be interpreted as, a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date that it is made. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise. Please refer to this Annual Report and the financial statements of the Group for a discussion of certain of the risks and factors that could adversely impact the Group's actual results, and cause its plans and objectives, to differ materially from those expressed or implied in any forward-looking statements. Financial instruments Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter. Page 102 Basis of Preparation and Caution Regarding Data Limitations This section is specifically relevant to, amongst others, the sustainability and climate models, calculations and disclosures throughout this report. The information contained in this document has been prepared on the following basis: i. certain information in this document is unaudited; ii. all information, positions and statements set out in this document are subject to change without notice; iii. the information included in this document does not constitute any investment, accounting, legal, regulatory or tax advice or an invitation or recommendation to enter into any transaction; iv. the information included in this document may have been prepared using models, methodologies and data which are subject to certain limitations. These limitations include: the limited availability of reliable data, data gaps, and the nascent nature of the methodologies and technologies underpinning this data; the limited standardisation of data (given, amongst other things, limited international coordination on data and methodology standards); and future uncertainty (due, amongst other things, to changing projections relating to technological development and global and regional laws, regulations and policies, and the current inability to make use of strong historical data); v. models, external data and methodologies used in information included in this document are or could be subject to adjustment which is beyond our control; vi. any opinions and estimates should be regarded as indicative, preliminary and for illustrative purposes only. Expected and actual outcomes may differ from those set out in this document (as explained in the "Forward-looking statements" section above); vii. some of the related information appearing in this document may have been obtained from public and other sources and, while the Group believes such information to be reliable, it has not been independently verified by the Group and no representation or warranty is made by the Group as to its quality, completeness, accuracy, fitness for a particular purpose or noninfringement of such information; viii. for the purposes of the information included in this document, a number of key judgements and assumptions have been made. It is possible that the assumptions drawn, and the judgement exercised may subsequently turn out to be inaccurate. The judgements and data presented in this document are not a substitute for judgements and analysis made independently by the reader; ix. any opinions or views of third parties expressed in this document are those of the third parties identified, and not of the Group, its affiliates, directors, officers, employees or agents. By incorporating or referring to opinions and views of third parties, the Group is not, in any way, endorsing or supporting such opinions or views; x. whilst the Group bears primary responsibility for the information included in this document, it does not accept responsibility for the external input provided by any third parties for the purposes of developing the information included in this document; xi. the data contained in this document reflects available information and estimates at the relevant time; xii. where the Group has used any methodology or tools developed by a third party, the application of the methodology or tools (or consequences of its application) shall not be interpreted as conflicting with any legal or contractual obligations and such legal or contractual obligations shall take precedence over the application of the methodology or tools; xiii. where the Group has used any underlying data provided or sourced by a third party, the use of the data shall not be interpreted as conflicting with any legal or contractual obligations and such legal or contractual obligations shall take precedence over the use of the data; xiv. this Important Notice is not limited in applicability to those sections of the document where limitations to data, metrics and methodologies are identified and where this Important Notice is referenced. This Important Notice applies to the whole document; Page 103 xv. further development of reporting, standards or other principles could impact the information included in this document or any metrics, data and targets included in this document (it being noted that ESG reporting and standards are subject to rapid change and development); and xvi. while all reasonable care has been taken in preparing the information included in this document, neither the Group nor any of its affiliates, directors, officers, employees or agents make any representation or warranty as to its quality, accuracy or completeness, and they accept no responsibility or liability for the contents of this information, including any errors of fact, omission or opinion expressed. You are advised to exercise your own independent judgement (with the advice of your professional advisers as necessary) with respect to the risks and consequences of any matter contained in this document. The Group, its affiliates, directors, officers, employees or agents expressly disclaim any liability and responsibility for any decisions or actions which you may take and for any damage or losses you may suffer from your use of or reliance on the information contained in this document. Copyright in all materials, text, articles and information contained in this document (other than third party materials, text, articles and information) is the property of, and may only be reproduced with permission of an authorised signatory of, the Group. Copyright in materials, text, articles and information created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of the Group and should not be reproduced or used except for business purposes on behalf of the Group or save with the express prior written consent of an authorised signatory of the Group. All rights reserved. Page 104 This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com. RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy. END FR UOSSRSSUUURR

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