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Group Chief Financial Officer's review continued

Reported financial performance summary

	3Q'23 $million	3Q'22 $million	Change %	Constant currency change¹ %	2Q'23 $million	Change %	Constant currency change¹ %	YTD'23 $million	YTD'22 $million	Change %	Constant currency change¹ %
Net interest income	1,925	1,932	-	2	1,978	(3)	(2)	5,909	5,570	6	10
Other income	2,598	2,397	8	9	2,589	-	2	7,741	6,984	11	14
Reported operating income	4,523	4,329	4	6	4,567	(1)	-	13,650	12,554	9	12
Reported operating expenses	(2,870)	(2,696)	(6)	(8)	(2,918)	2	1	(8,538)	(8,024)	(6)	(9)
Reported operating profit before impairment and taxation	1,653	1,633	1	3	1,649	-	1	5,112	4,530	13	17
Credit impairment	(292)	(227)	(29)	(40)	(141)	(107)	(106)	(453)	(490)	8	3
Goodwill & other impairment	(734)	(31)	nm³	nm³	(77)	nm³	nm³	(811)	(46)	nm³	nm³
Profit from associates and joint ventures	6	16	(63)	(63)	84	(93)	(93)	108	169	(36)	(36)
Reported profit before taxation	633	1,391	(54)	(54)	1,515	(58)	(57)	3,956	4,163	(5)	(2)
Taxation	(494)	(313)	(58)	(65)	(474)	(4)	(5)	(1,432)	(997)	(44)	(57)
Profit/(loss) for the period	139	1,078	(87)	(87)	1,041	(87)	(86)	2,524	3,166	(20)	(19)
Reported return on tangible equity (%)2	(0.4)	10.5	(1,090)		10.8	(1,120)		7.8	10.1	(230)
Reported earnings per share (cents)	(1.3)	32.7	(104)		34.8	(104)		74.9	94.8	(21)

1      Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2      Change is the basis points (bps) difference between the two periods rather than the percentage change

3      Not meaningful

The Group delivered a solid performance in the third quarter of 2023, supported by strong progress on the five strategic actions. The Group's underlying profit before tax of $1.3 billion was 2 per cent lower than in the prior year. Income grew 7 per cent on a constant currency basis with a 20 per cent increase in net interest income partly offset by a 5 per cent reduction in other income. Expenses increased 8 per cent at constant currency but were down 1 per cent compared to the previous quarter. The credit impairment charges in the quarter of $294 million included further charges relating to the China commercial real estate sector. The Group reduced the carrying value of its investment in China Bohai Bank by $697 million resulting in reported profit before tax declining by half to $633 million, with an 18 basis points impact to the CET1 ratio. The Group remains well capitalised and highly liquid with a CET1 ratio of 13.9 per cent, an advances-to-deposits ratio of 55 per cent, and a liquidity coverage ratio of 156 per cent.

All commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2022 on a reported currency basis, unless otherwise stated.

•       Operating income of $4.4 billion was up 6 per cent in the third quarter and increased 7 per cent on a constant currency basis, as the Group benefitted from a year-on-year increase in the net interest margin and a strong recovery in Wealth Management income

•       Underlying net interest income increased 18 per cent, or 20 per cent on a constant currency basis as the net interest margin increased 14 per cent or 20 basis points. This was despite a year-on-year incremental 12 basis points drag from hedges. Over the past year, the Group increased its pricing on assets and the yield on its Treasury portfolio more quickly than it repriced its liability base, reflecting strong pricing discipline and passthrough rate management albeit the rate paid increased more quickly than the gross yield on assets during the quarter

•       Underlying other income decreased 5 per cent as Financial Markets income was lower on the back of reduced market volatility and the non-repeat of $28 million of gains on mark-to-market liabilities in the third quarter of 2022. This was partly offset by strong growth in Wealth Management income, which continues to benefit from strong Affluent client onboarding and positive net new money

•       Operating expenses increased 8 per cent reflecting the impact of the Group's continuing investment into business growth initiatives and strategic investments, and higher inflation partly offset by cost efficiency actions. The Group generated 1 per cent negative income-to-cost jaws while the cost-to-income ratio increased 1 percentage point to 63 per cent

•       Credit impairment was a $294 million charge in the quarter, a $62 million increase on the third quarter of 2022, and double the amount booked in the prior quarter. Impairment charges in the quarter include $186 million in relation to the China commercial real estate sector and $115m in relation to the Consumer, Private and Business Banking portfolio. The year-to-date loan loss rate annualises to 20 basis points

 

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Group Chief Financial Officer's review continued

 

•       Profit from associates and joint ventures decreased $13 million to $3 million due to lower profits at China Bohai Bank (Bohai)

•       Restructuring and other items totalled $683 million in the quarter. The largest item was an impairment charge of $697 million reflecting a reduction in the carrying value of the Group's investment in Bohai following a refresh of the value-in-use calculation. Restructuring charges of $7 million primarily reflect redundancy and property optimisation charges partly offset by the profit from Aviation Finance and Principal Finance while movements in Debit Valuation Adjustment (DVA) were a positive $21 million

•       Taxation was $494 million on a reported basis, with an underlying year-to-date effective tax rate of 31 per cent compared to the prior year rate of 25 per cent reflecting a change in the geographic mix of profits and increased losses in the United Kingdom where we cannot recognise a tax benefit

•       Underlying return on tangible equity (RoTE) decreased by 240 basis points to 7.0 per cent primarily due to a higher effective tax rate partly offset by lower tangible equity benefitting from distributions to shareholders. On a reported basis, return on tangible equity was a negative 40 basis points

 

Operating income by product

	3Q'23 $million	3Q'222,3 $million	Change %	Constant currency change¹ %	2Q'23 $million	Change %	Constant currency change¹ %	YTD'23 $million	YTD222,3 $million	Change %	Constant currency change¹ %
Transaction Banking	1,496	1,067	40	42	1,461	2	2	4,356	2,620	66	71
Trade & Working capital	325	335	(3)	(2)	334	(3)	(3)	990	1,027	(4)	(1)
Cash Management	1,171	732	60	61	1,127	4	4	3,366	1,593	111	117
Financial Markets	1,253	1,386	(10)	(8)	1,391	(10)	(8)	4,058	4,198	(3)	-
Macro Trading	634	736	(14)	(11)	825	(23)	(22)	2,289	2,337	(2)	2
Credit Markets	472	455	4	4	462	2	4	1,394	1,325	5	8
Credit Trading	137	152	(10)	(7)	140	(2)	1	449	341	32	39
Financing Solutions & Issuance3	335	303	11	10	322	4	5	945	984	(4)	(2)
Financing & Securities Services3	147	195	(25)	(24)	104	41	42	375	536	(30)	(29)
Lending & Portfolio Management	121	164	(26)	(26)	132	(8)	(8)	387	446	(13)	(10)
Wealth Management	526	454	16	18	495	6	7	1,532	1,438	7	9
Retail Products	1,279	1,099	16	17	1,240	3	4	3,731	2,880	30	33
CCPL & other unsecured lending	297	298	-	2	286	4	5	873	908	(4)	-
Deposits	919	620	48	50	848	8	9	2,538	1,216	109	115
Mortgage & Auto	31	140	(78)	(78)	74	(58)	(57)	219	621	(65)	(64)
Other Retail Products	32	41	(22)	(19)	32	-	3	101	135	(25)	(22)
Treasury	(274)	(5)	nm4	nm4	(160)	(71)	(70)	(667)	510	nm4	nm4
Other	2	(27)	107	78	(4)	150	-	(43)	(95)	55	36
Total underlying operating income	4,403	4,138	6	7	4,555	(3)	(3)	13,354	11,997	11	15

1      Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2      Underlying income for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to reported performance

3      Shipping Finance is now reported under "Financing Solutions & Issuance" which was reported under "Financing & Securities Services" in Q1'23

4      Not meaningful

The operating income by product commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2022 on a constant currency basis, unless otherwise stated.

Transaction Banking income increased 42 per cent. Cash Management income was 61 per cent higher reflecting strong pricing discipline and passthrough rate management to take advantage of a rising interest rate environment. Trade & Working Capital decreased 2 per cent reflecting lower balance sheet and contingent volumes partly offset by higher margins as the Group focused on higher-returning trade products.

Financial Markets income was 8 per cent lower compared to a very strong third quarter performance last year and was down 6 per cent excluding the non-repeat of prior year fair value gains on mark-to-market liabilities. There was 3 per cent growth in flow income which was more than offset by a 28 per cent reduction in episodic income, driven by subdued market volatility and the non-repeat of the gains on mark-to-market liabilities. Macro Trading was down 11 per cent with double-digit declines in FX and Commodities.

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Group Chief Financial Officer's review continued

Credit Markets income was up 4 per cent with lower Credit Trading income offset by higher Financing Solutions & Issuance, with the closure of a number of financing deals and strong origination volumes in primary markets leading to market share gains. Excluding the non-repeat of $28 million of gains on mark-to-market liabilities, Financing & Security Services income was down 14 per cent as higher Securities Services income benefiting from rising interest rates was more than offset by adverse movements in XVA.

Lending and Portfolio Management income decreased 26 per cent with an increase in losses in relation to portfolio management activities, and a decline in lending income from lower volumes, and increased cost of funding on undrawn commitments.

Wealth Management income grew 18 per cent with strong double-digit growth across Bancassurance, up 30 per cent and Treasury Products up 14 per cent. partly offset by lower income from managed investments. There was continued strong growth in net new money , which offset adverse market movements as Wealth Management AUM remained broadly stable.

Retail Products income increased 17 per cent. Deposit income was up 50 per cent due to low passthrough rates in a rising interest rate environment partly offset by migration from CASA into time deposits. Mortgages & Auto income decreased 78 per cent on the back of lower volumes and the impact of the Best Lending Rate cap in Hong Kong restricting the ability to reprice mortgages, despite an increase in funding costs from higher interest rates. Credit Cards & Personal Loans income increased 2 per cent reflecting growth in balances in both Credit Cards and Personal Loans.

Treasury income was a $274 million loss in the quarter primarily due to the $267 million loss from structural and short-term hedges in a rising interest environment and costs for holding additional liquidity centrally rather than it being recharged out to the products. This was in part offset by gains from RoTE-accretive cross-currency FX swaps which were funded by deposits.

Profit before tax by client segment and geographic region

	3Q'23 $million	3Q'22² $million	Change %	Constant currency change¹ %	2Q'23 $million	Change %	Constant currency change¹ %	YTD'23 $million	YTD'22² $million	Change %	Constant currency change¹ %
Corporate, Commercial & Institutional Banking	1,255	1,209	4	5	1,430	(12)	(11)	4,170	3,019	38	44
Consumer, Private & Business Banking	669	481	39	38	696	(4)	(4)	2,042	1,195	71	75
Ventures	(117)	(85)	(38)	(34)	(55)	(113)	(113)	(275)	(236)	(17)	(16)
Central & other items (segment)	(491)	(259)	(90)	(92)	(471)	(4)	(6)	(1,315)	19	nm³	nm³
Underlying profit before taxation	1,316	1,346	(2)	(2)	1,600	(18)	(17)	4,622	3,997	16	19
Asia	1,063	1,053	1	-	1,354	(21)	(21)	3,812	2,829	35	37
Africa & Middle East	273	150	82	83	349	(22)	(21)	926	701	32	54
Europe & Americas	(90)	244	(137)	(134)	7	nm³	nm³	(101)	890	(111)	(111)
Central & other items (region)	70	(101)	169	155	(110)	164	161	(15)	(423)	96	96
Underlying profit before taxation	1,316	1,346	(2)	(2)	1,600	(18)	(17)	4,622	3,997	16	19

1      Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2      Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to reported performance

3      Not meaningful

The client segment and geographic region commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2022 on a constant currency basis, unless otherwise stated.

Corporate, Commercial & Institutional Banking (CCIB) profit increased 5 per cent. Income grew 11 per cent with Cash Management benefitting from disciplined pricing initiatives in a rising interest rate environment partly offset by lower episodic income within Financial Markets and lower Lending income. Expenses were 10 per cent higher and credit impairment increased $72 million reflecting further provisions in the China commercial real estate sector.

Consumer, Private & Business Banking (CPBB) profit increased 38 per cent, with income up 17 per cent as the benefit from higher interest rates on Retail Deposit income and a continued recovery in Wealth Management. This was partly offset by lower Mortgage income negatively impacted by the Best Lending Rate cap in Hong Kong. Expenses increased 6 per cent while credit impairment was $29 million higher.

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Group Chief Financial Officer's review continued

Ventures loss increased by over a third to $117 million, reflecting the Group's continued investment in transformational digital initiatives. Income more than tripled to $35 million but this increase was offset by increased expenses, albeit expenses were flat quarter-on-quarter. The impairment charge increased $26 million to $30 million reflecting increased delinquencies in Mox and the build of expected credit loss provisions as credit portfolios grow.

Central & other items (segment) recorded a loss of $491 million, an increase of $232 million, with hedge losses increasing by $170 million to $267 million driven by increased US Dollar interest rates. Expenses increased by $20 million while there was a net release in credit impairment relating to exposure reductions. Associate income reduced by $13 million reflecting lower profits at Bohai.

Asia profits were stable as income grew 10 per cent offset by a 9 per cent growth in expenses and a $118 million increase in credit impairments. The income growth reflects strong double-digit increases across Cash Management, Retail Deposits and Wealth Management partly offset by lower Mortgage income and a loss in Treasury Markets. The increase in credit impairment reflects further provisions relating to the China commercial real estate portfolio. The profit share from Bohai reduced by $11 million.

Africa & Middle East (AME) profits increased 83 per cent as income increased 19 per cent with strong growth in Cash Management and Retail Deposit income partly offset by a loss in Treasury Markets following de-risking actions in certain markets. This was partly offset by expenses increasing 9 per cent while credit impairment charges reduced by $71 million, reflecting a non-repeat of the prior year's sovereign-related impairments.

Europe & Americas recorded a loss of $90 million as income reduced by 44 per cent, reflecting the increased cost of hedges within Treasury whilst strong growth in Transaction Banking income was partly offset by lower Financial Markets income. Expenses increased 18 per cent reflecting the impact of inflation and higher investment spend. There was a $16 million reduction in the credit impairment release booked in the quarter.

Central & other items (region) recorded a profit of $70 million compared to a $101 million loss in the third quarter of 2022. The return to profitability is mainly due to higher returns paid to Treasury on the equity provided to the regions in a rising interest rate environment while expenses reduced by 22 per cent.

Adjusted net interest income and margin

	3Q'23 $million	3Q'22 $million	Change¹ %	2Q'23 $million	Change¹ %	YTD'23 $million	YTD'22 $million	Change¹ %
Adjusted net interest income2	2,380	2,023	18	2,430	(2)	7,151	5,720	25
Average interest-earning assets	579,713	562,509	3	569,811	2	577,351	564,382	2
Average interest-bearing liabilities	548,297	522,641	5	536,142	2	541,171	525,600	3
Gross yield (%)3	5.06	2.88	218	4.61	45	4.68	2.34	234
Rate paid (%)3	3.63	1.57	206	3.08	55	3.23	1.06	217
Net yield (%)3	1.43	1.31	12	1.53	(10)	1.45	1.28	17
Net interest margin (%)3,4	1.63	1.43	20	1.71	(8)	1.66	1.36	30

1      Variance is better/(worse) other than assets and liabilities which is increase/(decrease)

2      Adjusted net interest income is reported net interest income less funding costs for the trading book and financial guarantee fees on interest-earning assets

3      Change is the basis points (bps) difference between the two periods rather than the percentage change

4      Adjusted net interest income divided by average interest-earning assets, annualised

5      Not meaningful

Adjusted net interest income increased 18 per cent due to a 14 per cent increase in the net interest margin which averaged 163 basis points in the quarter, increasing 20 basis points year-on-year but decreasing 8 basis points compared to the prior quarter. Normalised net interest margin, excluding the impacts of one-offs from a system migration and effective interest rate adjustment in relation to the Singapore mortgage portfolio, averaged 167 basis points in the quarter:

•       Average interest-earning assets increased 2 per cent in the quarter with growth primarily from an increase in the cash and balances at central banks and loans and advances to customers. Gross yields increased 45 basis points compared with the prior quarter with an underlying 31 basis points increase in the quarter, adjusting for one-offs, due to the impact of rising interest rates on customer loan pricing and on Treasury portfolio yields partly offset by a 2 basis points quarter-on-quarter additional loss from hedges

•       Average interest-bearing liabilities increased 2 per cent in the quarter due to an increase in customer accounts and debt securities in issue. The rate paid on liabilities increased 55 basis points compared with the average in the prior quarter with an underlying 38 basis points increase in the quarter, adjusting for one-offs, due to the impact of interest rate movements and a slight deterioration in the liability mix

 

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Group Chief Financial Officer's review continued

Credit risk summary

Income Statement

	3Q'23 $million	3Q'22² $million	Change1 %	2Q'23 $million	Change1 %	YTD'23 $million	YTD'22² $million	Change1 %
Total credit impairment charge/(release)	294	232	27	146	101	466	496	(6)
Of which stage 1 and 2	101	183	(45)	27	274	134	172	(22)
Of which stage 3	193	49	294	119	62	332	324	2

1      Variance is increase/(decrease) comparing current reporting period to prior reporting periods

2      Underlying credit impairment for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME and (ii) Aviation Finance. No change to reported credit impairment

Balance sheet

	30.09.23 $million	30.06.23 $million	Change1 %	31.12.22 $million	Change1 %	30.09.22 $million	Change1 %
Gross loans and advances to customers2	286,531	295,508	(3)	316,107	(9)	303,538	(6)
Of which stage 1	266,590	277,711	(4)	295,219	(10)	284,877	(6)
Of which stage 2	12,431	10,110	23	13,043	(5)	11,460	8
Of which stage 3	7,510	7,687	(2)	7,845	(4)	7,201	4
Expected credit loss provisions	(5,522)	(5,371)	3	(5,460)	1	(5,148)	7
Of which stage 1	(458)	(451)	2	(559)	(18)	(497)	(8)
Of which stage 2	(440)	(400)	10	(444)	(1)	(434)	1
Of which stage 3	(4,624)	(4,520)	2	(4,457)	4	(4,217)	10
Net loans and advances to customers	281,009	290,137	(3)	310,647	(10)	298,390	(6)
Of which stage 1	266,132	277,260	(4)	294,660	(10)	284,380	(6)
Of which stage 2	11,991	9,710	23	12,599	(5)	11,026	9
Of which stage 3	2,886	3,167	(9)	3,388	(15)	2,984	(3)
Cover ratio of stage 3 before/after collateral (%)3	62/79	59/78	3/1	57/76	5/3	59/77	3/2
Credit grade 12 accounts ($million)	1,132	1,316	(14)	1,574	(28)	1,140	(1)
Early alerts ($million)	5,403	4,443	22	4,967	9	4,957	9
Investment grade corporate exposures (%)3	74	74	-	76	(2)	75	(1)

1.     Variance is increase/(decrease) comparing current reporting period to prior reporting periods

2.     Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $10,267 million at 30 September 2023, $10,950 million at 30 June 2023, $24,498 million at 31 December 2022 and $18,032 million at 30 September 2022

3.     Change is the percentage points difference between the two points rather than the percentage change

Asset quality remained resilient in the third quarter, with an improvement in a number of underlying credit metrics albeit credit impairment charges increased in the quarter. The Group continues to actively manage the credit portfolio whilst remaining alert to a volatile and challenging external environment including increased geopolitical tensions which has led to idiosyncratic stress in a select number of markets and industry sectors.

Credit impairment was a $294 million charge in the third quarter, a $62 million increase year-on-year and represents an annualised year-to-date loan loss rate of 20 basis points. There was a further $186 million impairment charge relating to the China commercial real estate sector, including a $42 million increase in the management overlay which now totals $178 million. The Group has provided $1.1 billion in total in relation to the China commercial real estate sector primarily over the last two years. There was a net release of $7 million relating to sovereign downgrades while there was a $115 million charge in relation to the CPBB portfolio and $30 million charge in Ventures primarily from portfolio growth and increased delinquencies in Mox.

Gross stage 3 loans and advances to customers of $7.5 billion were 2 per cent lower as repayments, client upgrades, reduction in exposures and write-offs more than offset new inflows. Credit-impaired loans represent 2.6 per cent of gross loans and advances, broadly flat on the prior quarter.

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Group Chief Financial Officer's review continued

The stage 3 cover ratio of 62 per cent increased by 3 percentage points compared to 30 June 2023, while the cover ratio post collateral at 79 per cent increased by 1 percentage point due to an increase in stage 3 provisions in relation to the China commercial real estate sector and a reduction in gross stage 3 balances.

Credit grade 12 balances decreased $184 million to $1.1 billion in the quarter. Early Alert accounts of $5.4 billion have increased by $960 million since 30 June 2023, reflecting new inflows relating to a select number of clients including sovereign-related exposures. The Group is continuing to carefully monitor its exposures in vulnerable sectors and select markets, given the unusual stresses caused by the currently difficult macro-economic environment.

The proportion of investment grade corporate exposures remained stable in the quarter at 74 per cent.

Restructuring, goodwill impairment and other items

	3Q'23			3Q'22¹			2Q'23
	Restructuring $million	Goodwill & other Impairment2 $million	DVA $million	Restructuring $million	Goodwill & other impairment $million	DVA $million	Restructuring $million	Goodwill & other impairment $million	DVA $million
Operating income	99	-	21	136	-	55	105	-	(93)
Operating expenses	(100)	-	-	(120)	-	-	(89)	-	-
Credit impairment	2	-	-	5	-	-	5	-	-
Other impairment	(11)	(697)	-	(31)	-	-	(14)	-	-
Profit from associates and joint ventures	3	-	-	-	-	-	1	-	-
Loss before taxation	(7)	(697)	21	(10)	-	55	8	-	(93)

1      Restructuring, DVA and other items for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA from underlying operating performance

2      Goodwill and other impairment include $697 million impairment charge relating to the Group's investment in its associate China Bohai Bank (Bohai)

The Group's reported performance is adjusted for profits or losses of a capital nature, amounts consequent to investment transactions driven by strategic intent, other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period and items which management and investors would ordinarily identify separately when assessing underlying performance period-by period.

The Group has signed sale agreements to exit seven markets in the AME region and will focus solely on the CCIB segment in two more markets . Additionally, following the Group's announcement on 11 January 2023 that it intends to explore alternatives for the ownership of the Aviation Finance business, the Group signed agreements on 28 August 2023 for the sale of its global aviation finance leasing business to Aircraft Leasing Company ("AviLease") for consideration of US$0.7 billion (the "Consideration"), giving rise to an estimated gain on disposal of US$0.3 billion and an increase in Common Equity Tier 1 capital ratio by around 19 basis points. The Consideration is subject to adjustment with reference to the net asset value of the business sold on completion. The $1 billion Aviation Loan businesses will be sold separately, and it is anticipated this will also be completed before the end of 2023. As a result of these announcements, effective 1st January 2023, the Group has not included the exit markets and the Aviation Finance business within the Group's underlying operating profit before taxation but will report them within restructuring.

The Group has also classified movements in the debit valuation adjustment (DVA) out of its underlying operating profit before taxation and into other items.

To aid comparisons with prior periods the Group has removed the exit markets, Aviation Finance business and DVA from its underlying operating profit before taxation for 2022.

Restructuring loss before tax $7 million reflects the impact of actions to transform the organisation to improve productivity, primarily additional redundancy charges and optimising the Group's property footprint partly offset by the profit from the Aviation Finance business and gains on the remaining Principal Finance portfolio.

Other impairment of $697 million is in relation to a further reduction in the carrying value of the Group's investment in its associate Bohai, to align to a lower value-in-use computation reflecting lower forecasted interest rates and a lower net interest margin reported by Bohai in its half-year financial reporting. The carrying value of the Group's investment in Bohai has reduced to $0.8 billion from $1.5 billion.

Movements in DVA were a positive $21 million driven by the widening of Group's asset swap spreads on derivative liability exposures. The size of the portfolio subject to DVA did not change materially during the quarter.

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Group Chief Financial Officer's review continued

Balance sheet and liquidity

	30.09.23 $million	30.06.23 $million	Change1 %	31.12.22 $million	Change1 %	30.09.22 $million	Change1 %
Assets
Loans and advances to banks	46,111	44,602	3	39,519	17	43,315	7
Loans and advances to customers	281,009	290,137	(3)	310,647	(10)	298,390	(6)
Other assets	498,713	503,972	(1)	469,756	6	522,730	(5)
Total assets	825,833	838,711	(2)	819,922	1	864,435	(4)
Liabilities
Deposits by banks	29,744	28,560	4	28,789	3	27,728	7
Customer accounts	453,157	469,567	(3)	461,677	(2)	447,259	1
Other liabilities	294,576	290,903	1	279,440	5	339,445	(13)
Total liabilities	777,477	789,030	(1)	769,906	1	814,432	(5)
Equity	48,356	49,681	(3)	50,016	(3)	50,003	(3)
Total equity and liabilities	825,833	838,711	(2)	819,922	1	864,435	(4)
Advances-to-deposits ratio (%)2	54.5%	53.6%		57.4%		58.1%
Liquidity coverage ratio (%)	156%	164%		147%		156%

1      Variance is increase/(decrease)comparing current reporting period to prior reporting periods

2      The Group now excludes $21,241 million held with central banks (30.06.23: $24,749 million, 31.12.22: $20,798 million, 30.09.22: $21,683 million) that has been confirmed as repayable at the point of stress. Advances exclude repurchase agreement and other similar secured lending of $10,267 million (30.06.23: $10,950 million) and include loans and advances to customers held at fair value through profit or loss of $5,935 million (30.06.23: $5,368 million). Deposits include customer accounts held at fair value through profit or loss of $15,930 million (30.06.23: $15,026 million)

The Group's balance sheet remains strong, liquid and well diversified:

Loans and advances to customers decreased by $9 billion or 3 per cent from 30 June 2023 to $281 billion. This reflects the impact of a $7 billion reduction from Treasury and securities backed loans, primarily reverse repurchase agreements, held to collect, a $2 billion reduction from risk-weighted asset optimisation actions primarily in CCIB and $2 billion reduction from currency translation . Excluding these adjustments, loans and advances grew $2 billion or 1 per cent, in the quarter.

Customer accounts of $453 billion decreased by $17 billion or 3 per cent since 30 June 2023. Excluding a $3 billion reduction from currency translation, customer accounts reduced by $14 billion, or 3 per cent, with lower balances in Cash Management and Financial Markets partly offset by an increase in Retail Time Deposits. The reduction in customer accounts reflect actions undertaken by the Group to manage its liquidity coverage ratio.

Other assets decreased 1 per cent in the third quarter with an increase in cash and balances held at central banks and derivative balances more than offset by a reduction in investment securities and unsettled trade balances. Other liabilities increased 1 per cent with an increase in debt securities in issue partly offset by a reduction in derivative liabilities and unsettled trade liabilities.

The advances-to-deposits ratio increased to 54.5 per cent from 53.6 per cent at 30 June 2023. The point-in-time liquidity coverage ratio decreased 8 percentage points in the quarter to 156 per cent and remains well above the minimum regulatory requirement.