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  • HSBC Bank plc Annual Report and Accounts 2017

  • HSBC Bank plc Annual Report and Accounts 2017 1

    Contents Page

    Strategic Report

    Highlights

    Purpose and strategy

    Products and services

    How we do business

    Key performance indicators

    Economic background and outlook

    Financial summary

    Risk overview

    Report of the Directors

    Risk

    – Our conservative risk appetite

    – Top and emerging risks

    – Areas of special interest

    – Risk management

    – Other material risks

    – Key developments and risk profile

    Capital

    – Capital management

    – Capital overview

    Corporate Governance Report

    – Directors

    – Company Secretary

    – Board of Directors

    – Directors‘ emoluments

    – Board committees

    – Internal control

    – Employees

    – Auditor

    – Conflicts of interest and indemnification of directors

    – Statement on going concern

    – Disclosure of information to the auditor

    – Statement of Directors’ Responsibilities

    Financial Statements

    Independent Auditors’ Report

    Financial Statements 75

    Notes on the Financial Statements 84

    Presentation of Information

    This document comprises the Annual Report and Accounts 2017 for HSBC Bank plc (‘the bank’) and its subsidiaries (together ‘the group’). ’We’, ‘us’ and ‘our’ refer to HSBC Bank plc together with its subsidiaries. It contains the Strategic Report, the Report of the Directors, the Statement of Directors’ Responsibilities and Financial Statements, together with the Independent Auditors’ Report, as required by the UK Companies Act 2006. References to ‘HSBC’ or ‘the Group’ within this document mean HSBC Holdings plc together with its subsidiaries.

    HSBC Bank plc is exempt from publishing information required by The Capital Requirements Country-by-Country Reporting Regulations 2013, as this information is published by its parent, HSBC Holdings plc. This information will be available in June 2018 on HSBC’s website: www.hsbc.com.

    Pillar 3 disclosures for the group are also available on www.hsbc.com, under Investor Relations.

    All narrative disclosures, tables and graphs within the Strategic Report and Report of the Directors are unaudited unless otherwise stated.

    Our reporting currency is £ sterling.

    Unless otherwise specified, all $ symbols represent US dollars.

    Cautionary Statement Regarding Forward- Looking Statements This Annual Report and Accounts 2017 contains certain forward- looking statements with respect to the financial condition, results of operations and business of the group.

    Statements that are not historical facts, including statements about the group’s beliefs and expectations, are forward-looking statements. Words such as ‘expects’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward- looking statements speak only as of the date they are made. HSBC Bank plc makes no commitment to revise or update any forward- looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statement.

    Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement.

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  • Strategic Report | Highlights

    2 HSBC Bank plc Annual Report and Accounts 2017

    Highlights

    Footnotes 2017 2016

    For the year (£m)

    Profit before tax (reported basis) 2,370 874

    Profit before tax (adjusted basis) 1 3,832 4,234

    Net operating income before loan impairment charges and other credit risk provisions 2 13,052 13,305

    Profit/(loss) attributable to shareholders of the parent company 1,809 (212)

    At year-end (£m)

    Total equity attributable to shareholders of the parent company 43,462 39,930

    Total assets 818,868 816,829

    Risk-weighted assets 233,073 245,237

    Loans and advances to customers (net of impairment allowances) 280,402 272,760

    Customer accounts 381,546 375,252

    Capital ratios (%) 3

    Common equity tier 1 11.8 10.2

    Tier 1 13.8 12.3

    Total capital 16.9 15.7

    Performance, efficiency and other ratios (annualised %)

    Return on average ordinary shareholders’ equity 4 4.2 (1.2)

    Return on average risk-weighted assets 1.0 0.4

    Adjusted return on average risk-weighted assets 1.6 1.7

    Cost efficiency ratio (reported basis) 5 78.2 90.3

    Cost efficiency ratio (adjusted basis) 5 67.5 63.9

    Jaws (adjusted basis) 6 (5.8) 0.4

    Ratio of customer advances to customer accounts 73.5 72.7

    1 Adjusted performance is computed by adjusting reported results for the effect of significant items as detailed on pages 10 to 12. 2 Net operating income before loan impairment charges and other credit risk provisions is also referred to as revenue. 3 Capital ratios as detailed on the capital section on pages 56 to 58. 4 The return on average ordinary shareholders’ equity is defined as profit attributable to shareholders of the parent company divided by the average total shareholders’ equity. 5 Reported cost efficiency ratio is defined as total operating expenses (reported) divided by net operating income before loan impairment charges and other credit risk provisions

    (reported), while adjusted cost efficiency ratio is defined as total operating expenses (adjusted) divided by net operating income before loan impairment charges and other credit risk provisions (adjusted). Net operating income before loan impairment charges and other credit risk provisions (adjusted) is also referred to as revenue (adjusted).

    6 Adjusted jaws measures the difference between adjusted revenue and adjusted cost growth rates.

  • HSBC Bank plc Annual Report and Accounts 2017 3

    Purpose and strategy

    Our purpose

    The purpose of HSBC Bank plc is to connect customers to opportunities, enable businesses to thrive and economies to prosper and ultimately help people to fulfil their hopes and realise their ambitions.

    Geographical presence In the group, we operate in 18 countries. Our operating entities represent the group to customers, regulators, employees and other stakeholders. Our priority markets are the UK, France and Germany.

    As at 31 December 2017, the bank had 625 branches in the United Kingdom, and 13 located in the Isle of Man and the Channel Islands. The bank and its subsidiaries had further banks, branches and offices in Armenia, Belgium, Czech Republic, France, Germany, Greece, Ireland, Israel, Italy, Luxembourg, Malta, The Netherlands, Poland, Russia, South Africa, Spain and Switzerland.

    On 29 June 2017, HSBC Bank plc transferred its shareholding in HSBC Bank A.S. to HSBC Middle East Holdings B.V. (89.99%) and HSBC Bank Middle East Limited (10.01%). The transfer was made as a dividend in-specie to HSBC Holdings plc.

    The results of HSBC Bank A.S. for the period up to the transfer are included in the group results. To the date of transfer, HSBC Bank A.S. contributed £116m operating income (2016: £356m), and incurred £10m in loan impairment and other charges (2016: £108m) and £86m in operating expenses (2016: £324m). HSBC Bank A.S.'s contribution to the group’s profit before tax in the year up the date of its transfer was £20m (2016: £76m loss).

    As a result of the transfer, the total assets excluding goodwill of the group reduced by £4,831m and the total liabilities reduced by £4,265m. Total risk-weighted assets reduced by £4,080m and the common equity tier 1 reduced by £530m.

    The transfer passes through equity as a dividend in-specie that reduces reserves by £643m. This comprises HSBC Bank A.S.’s net asset value of £566m plus attributable goodwill of £77m.

    There was no gain or loss recognised in the group as a result of this transfer.

    HSBC worldwide The group is part of HSBC, which has approximately 229,000 employees working around the world to provide more than 37 million customers with a broad range of banking products and services to meet their financial needs.

    HSBC values HSBC values define who we are as an organisation and what makes us distinctive.

    Open

    • We are open to different ideas and cultures and value diverse perspectives.

    Connected

    • We are connected to our customers, communities, regulators and each other, caring about individuals and their progress.

    Dependable

    • We are dependable, standing firm for what is right and delivering on commitments.

    Our role in society How we do business is as important as what we do. Our responsibilities to our customers, employees and shareholders as well