Pillar 3 Disclosures at 31 December 2023

Contents

• Introduction
• Pillar 3 Disclosures and Governance

• Highlights
  5 Key metrics
  6 Regulatory developments and Key changes
  8 Linkage to the Annual Report and Accounts 2023
  12 Risk management
  14 Treasury risk management
  15 Own funds
  17 Leverage ratio
  19 Capital buffers
  19 Pillar 1 minimum capital requirements and RWA flow
  23 Liquidity
  29 Asset encumbrance
  30 Pillar 2 and ICAAP
  31 Minimum requirement for own funds and eligible liabilities
  38 Credit risk
  81 Counterparty credit risk
  86 Securitisation
  92 Market risk
  97 Non-financial risk
  98 Other risks
  99 Countercyclical capital buffer
  101 Board Diversity

Appendices

102 Appendix I - Summary of disclosures withheld

1. Appendix II - Mapping- Internal ratings to external ratings
2. Compliance with CRR II Pillar 3 requirements

1. Other information

1. Abbreviations
2. Cautionary statement regarding forward-looking statements
3. Contacts

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

This document should be read in conjunction with the Annual Report and Accounts 2023, which has been published on our website at

www.hsbc.com/investors.

Tables

• 1 Key metrics (KM1/IFRS9-FL)

• 2 Reconciliation of regulatory own funds to balance sheet in the audited financial statements (UK CC2)

• 3 Principal entities with a different regulatory and accounting scope of consolidation (LI3)

1. 4 Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories (LI1)
2. 5 Main sources of differences between regulatory exposure amounts and carrying values in financial statements (LI2)

15 6 Composition of Regulatory own funds (UK CC1)

1. 7 Leverage ratio common disclosure (UK LR2-LRCom)
2. 8 Summary reconciliation of accounting assets and leverage ratio exposures (UK LR1- LRSum)

18 9 Leverage ratio - split of on-balance sheet exposures (excluding derivatives, SFTs and exempted exposures) (UK LR3-LRSpl)

1. 10 Overview of risk-weighted exposure amounts (OV1)
2. 11 RWA flow statements of credit risk exposures under the IRB approach (CR8)

21 12 RWA flow statements of CCR exposures under IMM (CCR7)

21 13 RWA flow statements of market risk exposures under IMA (MR2-B)

1. 14 Quantitative information on IRRBB (UK IRRBB1)
2. 15 Level and components of HSBC Group consolidated liquidity coverage ratio (LIQ1)
3. 16 Net stable funding ratio (LIQ2)

27 17 Analysis of on-balance sheet encumbered and unencumbered assets

29 18 Encumbered and unencumbered assets (UK AE1)

1. 19 Collateral received and own debt securities issued (UK AE2)
2. 20 Sources of encumbrance (UK AE3)

1. 21.i Key metrics of the European resolution group (KM2)
2. 21.ii Key metrics of the Asian resolution group

1. 21.iii Key metrics of the US resolution group
2. 22 TLAC composition (TLAC1)
3. 23 HSBC Holdings plc creditor ranking (TLAC3)

1. 24 HSBC UK Bank plc creditor ranking (TLAC2)
2. 25 HSBC Bank plc creditor ranking (TLAC2)

1. 26 HSBC Asia Holdings Ltd creditor ranking (TLAC3)
2. 27 The Hongkong and Shanghai Banking Corporation Ltd creditor ranking (TLAC2)

37 28 Hang Seng Bank Ltd creditor ranking (TLAC2)

37 29 HSBC North America Holdings Inc. creditor ranking (TLAC3)

1. 30 Performing and non-performing exposures and related provisions (CR1)
2. 31 Maturity of exposure (CR1-A)
3. 32 Changes in the stock of non-performing loans and advances (CR2)

1. 33 Credit quality of forborne exposures (CQ1)
2. 34 Credit quality of performing and non-performing exposures by past due days (CQ3)
3. 35 Collateral obtained by taking possession and execution processes (CQ7)

1. 36 Quality of non-performing exposures by geography (CQ4)
2. 37 Credit quality of loans and advances to non-financial corporations by industry (CQ5)

1. 38 Credit risk mitigation techniques - overview (CR3)
2. 38.i Analysis of accounting lines comprising total exposures in CR3

1. 39 Standardised approach - credit conversion factor ('CCF') and credit risk mitigation ('CRM') effects (CR4)
2. 40 IRB - Effect on the RWA of credit derivatives used as CRM techniques (CR7)

48 41 IRB approach - Disclosure of the extent of the use of CRM techniques (CR7-A)

1. 42 Scope of the use of IRB and SA approaches (UK CR6-A)
2. 43 CQS reference table
3. 44 Standardised approach - exposures by asset classes and risk weights (CR5)

1. 45 Wholesale IRB credit risk models
2. 46 Wholesale IRB models - estimated and actual values
3. 47 Wholesale IRB exposure - back-testing of probability of default (PD) per portfolio (CR9)

62 48 Retail IRB risk rating systems

65 49 Retail IRB models - estimated and actual values

65 50 Retail IRB exposure - back-testing of probability of default (PD) per portfolio (CR9)

1. 51 Specialised lending and equity exposures under the simple risk-weight approach (CR10)
2. 51.i Equity exposures under simple risk-weighted approach
3. 52 IRB - Credit risk exposures by portfolio and PD range (CR6)

1. 53 Analysis of counterparty credit risk exposure by approach (excluding centrally cleared exposures (CCR1)
2. 54 Credit valuation adjustment capital charge (CCR2)

1. 55 Standardised approach - CCR exposures by regulatory exposure class and risk weights (CCR3)
2. 56 Composition of collateral for CCR exposure (CCR5)

1. 57 Credit derivatives exposures (CCR6)

1. 58 Exposures to central counterparties (CCR8)
2. 59 IRB - CCR exposures by portfolio and PD scale (CCR4)

1. 60 Securitisation exposures in the non-trading book (SEC1)

1. 61 Securitisation exposures in the trading book (SEC2)
2. 62 Securitisation exposures in the non-trading book and associated regulatory capital requirements - bank acting as originator or as sponsor (SEC3)

1. 63.i Securitisation exposures in the non-trading book and associated capital requirements - bank acting as investor (SEC4)
2. 63.ii Securitisation exposures in the trading book and associated capital requirements - bank acting as investor (SEC4)

1. 64 Exposures securitised by the institution - Institution acts as originator or as sponsor (SEC5)
2. 65 Market risk under standardised approach (MR1)

92 66 Market risk under IMA (MR2-A)

1. 67 Comparison of VaR estimates with gains/losses (MR4)
2. 68 IMA values for trading portfolios (MR3)
3. 69 Prudential valuation adjustments (PV1)
4. 70 Operational risk own funds requirements and risk- weighted exposure amounts (OR1)

1. 71 Geographical distribution of credit exposures relevant for the calculation of the countercyclical buffer (UK CCyB1)
2. 72 Amount of institution-specific countercyclical capital buffer (UK CCyB2)

Introduction

Pillar 3 Disclosures and Governance

Regulatory framework for disclosure

Our Pillar 3 Disclosures at 31 December 2023 comprises both quantitative and qualitative information required under Pillar 3. These disclosures are made in accordance with Part Eight of CRR II and the Prudential Regulation Authority ('PRA') disclosure templates and instructions. They are supplemented by specific additional requirements of the PRA and discretionary disclosures on our part.

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

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

At the consolidated Group level, capital is calculated for prudential regulatory purposes using the Basel III framework as implemented in the UK. Any references to European Union ('EU') regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation and/or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and may be subsequently amended under UK law. We refer to the regulatory requirements of the Capital Requirements Regulation and Directive, the CRR II regulation and the PRA Rulebook as 'CRR II'.

The regulators of the Group's banking entities outside the UK are at varying stages of implementation of Basel's framework, so local regulation may have been on the basis of Basel I, II, III or Basel 3.1.

While the frameworks may vary for some of our banking subsidiaries they do not impact Group's disclosures. However, the changes to local regulatory frameworks may impact distributions from our subsidiaries.

Information relating to the rationale for withholding certain disclosures is provided in Appendix I.

We publish our Pillar 3 disclosures quarterly on our website www.hsbc.com/investors.

Regulatory reporting processes and controls

The quality of regulatory reporting remains a key priority for management and regulators. We are progressing with a comprehensive programme to strengthen our global processes, improve consistency and enhance controls across regulatory reports.

The ongoing programme of work focuses on our material regulatory reports and is being phased over a number of years. This programme includes data enhancement, transformation of the reporting systems and an uplift to the control environment over the report production process.

While this programme continues, there may be further impacts on some of our regulatory ratios, such as the common equity tier ('CET1'), liquidity coverage ratio ('LCR') and net stable funding ratio ('NSFR'), as we implement recommended changes and continue to enhance our controls across the process.

Comparatives and references

To give insight into movements during 2023, we provide comparative figures, commentary on variances and flow tables for capital requirements. In all tables where the term 'capital requirements' is used, this represents the minimum total capital charge set at 8% of Risk-weighted asset ('RWA') by Article 92(1) of CRR II. Narratives are included to explain quantitative disclosures where necessary.

The regulatory numbers and ratios presented in this document were accurate as at the date of reporting. Small changes may exist between these numbers and ratios and those submitted in regulatory filings. Where differences are significant, we will restate comparatives.

Where disclosures have been enhanced, or are new, we do not generally restate or provide comparatives. Wherever specific rows and columns in the tables prescribed are not applicable or are immaterial to our activities, we omit them and follow the same approach for comparatives.

Pillar 3 requirements may be met by inclusion in other disclosure media. Where we adopt this approach, references are provided to the relevant pages of the Annual Report and Accounts 2023 of HSBC Holdings plc or to other documents.

The table below references where comparatives have been restated.

Governance

The Board continued to oversee the governance, operation and oversight of the Group and its principal and material subsidiaries.

The HSBC Pillar 3 disclosures at 31 December 2023 comply with the PRA Rulebook. They are approved by the HSBC Holdings Board of Directors ('HSBC Board') and are governed by the Group's disclosure policy and internal controls framework as approved by the Group Audit Committee ('GAC').

This Pillar 3 disclosure report was approved by the HSBC Board on 21 February 2024 and signed on its behalf by

Georges Elhedery

Group Chief Financial Officer

Highlights

CET1 Capital and ratio

Our CET1 capital was $126.5bn and our ratio was 14.8%

up 0.6 percentage points compared with 31 December 2022. This was mainly driven by capital generation net of dividends, share buy- backs announced in 2023 and regulatory adjustments, partially offset by an increase in RWAs.

The ratio is higher than our target range of 14% to 14.5% and we intend to continue to manage the CET1 ratio to within this range. The total dividend per share in 2023 of $0.61 resulted in a dividend payout ratio of 50% of earnings per share. For the purposes of computing our dividend payout ratio, we exclude material notable items and related impacts from earnings per share.

The Board has approved a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share. We also intend to initiate a share buy-back of up to $2.0bn, which we expect to complete by our first quarter 2024 results announcement.

CET1 capital and ratio

RWAs

Our RWAs are $854.1bn, an increase of $14.4bn in 2023, mainly due to $26.2bn growth in asset size, $6.2bn increase from business acquisitions and disposals, and $2.0bn due to foreign currency translation differences. These were partly offset by a $19.9bn reduction due to methodology and policy changes.

• Includes profits and movement in reserves, net of ordinary dividends, AT1 coupon payments and share buy-backs.

RWAs

Liquidity

The average Group 'LCR' was 136% or $171bn above the regulatory requirement and the average high-quality liquid assets ('HQLA') was $648bn. The Group consolidation methodology includes a deduction to reflect the impact of limitations in the transferability of entity liquidity around the Group. The result was an adjustment of $147bn to LCR HQLA and $7bn to LCR inflows on an average basis.

The average Group 'NSFR' was 133%. At 31 December 2023, all material operating entities were above regulatory minimum levels.

Liquidity

LCR (%)

NSFR (%)

31 Dec 2023 31 Dec 2022

1. 132

1. 136

Pillar 3 Disclosures at 31 December 2023

Key changes and regulatory assessments

In 2023 the below changes have impacted our capital and liquidity adequacy. We also continue to assess the impact of future regulatory changes expected through Basel 3.1.

IFRS 17 'Insurance Contracts'

We adopted IFRS 17 on 1 January 2023 and our comparative data previously published under IFRS 4 'Insurance Contracts', was restated for 2022. The adoption had a $9.7bn negative impact on the shareholder's equity and it was CET1 capital ratio neutral at that time. Due to movements in capital threshold deductions the adverse impact of this change on our CET1 ratio as at 31 December 2023 is 0.1 percentage points. There was an immaterial movement in Leverage exposure and ratio.

For further details on the effects of the adoption of IFRS 17, see Note 38 on page 422.of the Annual Report and Accounts 2023.

Hong Kong residential mortgages

From 1 January 2023, HKMA reduced the risk-weight floor for Hong Kong residential mortgage loans under its internal ratings-based approach from 25% to 15%. Although the risk-weight floor change was implemented in Hong Kong, at a consolidated Group level this decreased RWAs by $7.7bn and led to a 0.1 percentage point increase in CET1.

Non-performing Exposures

In 2023, the PRA revoked the requirement to deduct from CET1 capital the applicable amount of insufficient coverage for non- performing exposures. Reversing this deduction had a 0.1 percentage point impact to the CET1 ratio.

Silicon Valley Bank UK Limited (now HSBC Innovation Bank Limited)

In March 2023, HSBC UK Bank plc acquired Silicon Valley Bank UK Limited ('SVB UK'), and in June 2023 changed its legal entity name to HSBC Innovation Bank Limited ('HINV'). The gain on acquisition of $1.6bn was partially offset by an increase in RWAs of $9.6bn, resulting in a minimal impact on the Group CET1 ratio. The leverage exposure increased by $9.6bn and the ratio declined by 0.02 percentage points.

Planned sale of our retail banking operations in France

During the fourth quarter of 2023, the planned sale of HSBC Continental Europe's retail banking operations in France, was reclassified as held for sale, following the receipt of regulatory approvals and the satisfaction of other relevant conditions. It was remeasured at the lower of the carrying amount and fair value, less the costs incurred to sell. The reinstatement of the impairment had an adverse impact of approximately 0.2 percentage points on our CET1 ratio and 0.08 percentage points on our Leverage ratio. On 1 January 2024, we completed the sale of this business with no material incremental impact on CET1.

For further details of assets held for sale, liabilities of disposal groups

held for sale and business acquisitions, see Note 23 on page 401 of the Annual Report and Accounts 2023.

Liquidity coverage ratio

For the disclosure of the LCR, we follow Article 451a of CRR II. HSBC has implemented a Group consolidation methodology to reflect the requirements under the PRA Rulebook. This methodology is used to assess the limitations in the fungibility of entity liquidity around the Group and was enhanced in 2023 to consider more accurately, non- convertible currencies.

For further details of our approach to managing Liquidity Risk, see Treasury Risk management section on page 14.

BoCom

We have recognised a charge of $3bn in 2023 relating to the impairment of the investment in Bank of Communications Co., Limited ('BoCom'). The impairment reflects a revision to the accounting value-in-use in line with recent market-wide developments in mainland China. The impairment of BoCom has an insignificant impact on HSBC's capital and CET1 ratio. This is because the impairment charge has a partially offsetting reduction in threshold deductions from regulatory capital. For regulatory capital purposes, our share of BoCom's profits are not capital accretive, whereas the dividends we receive from BoCom are capital accretive.

For further details of significant accounting judgements, see page 106 of the Annual Report and Accounts 2023.

Basel 3.1

In September 2023, the PRA announced changes to the UK implementation of Basel 3.1 with a new proposed implementation date of 1 July 2025. For further details related to the November 2022 consultation, see page 6 of our Pillar 3 Disclosures at 31 December 2022. We are currently assessing the impact of the consultation paper and the associated implementation challenges (including data provision) on our RWAs upon initial implementation.

The RWA output floor under Basel 3.1 is proposed to be subject to a four-and-a-half year transitional provision. Any impact from the output floor is expected be towards the end of the transition period.

This section demonstrates the links between the Group's audited financial balance sheet and its regulatory counterpart. In addition to the reconciliation presented here in Table 2, our Pillar 3 Disclosures at

31 December 2023 also provide:

• an analysis of the regulatory reporting balance sheet by risk type; and
• a reconciliation between accounting valuation and the regulatory measure of exposure.

Structure of the regulatory group

The regulatory consolidation is consistent with the accounting consolidation, with the following exceptions:

• the subsidiaries engaged in insurance activities are equity accounted in the regulatory consolidation and then deducted from CET1 capital, subject to thresholds;

• the special purpose entities ('SPEs') are excluded where significant risk has been transferred to third parties. Exposures to these SPEs are risk weighted as securitisation positions for regulatory purposes;
• the participating interests in banking associates are proportionally consolidated for regulatory purposes by including our share of assets, liabilities, profits and losses, and RWAs in accordance with the PRA's regulatory requirements; and,
• non-participatingsignificant investments are deducted from capital, subject to thresholds.

For further details of the differences between the accounting and regulatory scope of consolidation and their definition of exposure, see pages 8 to 11.