Company: HBCYF
Filing Date: 2025-02-20
Form Type: 20-F
Source: 0001089113-25-000040
Chunk: 515

Company: HSBC HOLDINGS PLC
Filing Date: 2025-02-20
Form: 20-F
Chunk 515
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 the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial statements; and (ii) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Measurement of expected credit losses As described in Note 1.2 (i) to the consolidated financial statements, expected credit losses (‘ECL’) are recognised for loans and advances to banks and customers, non-trading reverse repurchase agreements, other financial assets held at amortised cost, debt instruments measured at fair value through other comprehensive income and certain loan commitments and financial guarantee contracts. As disclosed by management, the Group's allowance for ECL was $10.2bn at 31 December 2024. The assessment of credit risk and the estimation of ECL are

| 362 | HSBC Holdings plcAnnual Report on Form 20-F |

Report of Independent Registered Public Accounting Firm

probability-weighted and incorporate information about past events, current conditions and forecasts of future economic conditions at the reporting date. Management calculates ECL using three main components: a probability of default (‘PD’), a loss given default (‘LGD’) and the exposure at default (‘EAD’). As disclosed by management, the recognition and measurement of ECL involves the use of significant judgement and estimation. Management form multiple economic scenarios, apply these forecasts to credit risk models to estimate future credit losses, and probability weight the results to determine an ECL estimate. The ECL for wholesale stage 3 exposures is determined on an individual basis using discounted cash flow methodologies. At the end of 2024, risks to the economic outlook included a number of significant geopolitical issues. In addition, the mainland China commercial real estate (‘CRE’) portfolio continues to face challenges as market fundamentals remain weak and refinancing risks continue. The principal considerations for our determination that performing procedures relating to the measurement of ECL is a critical audit matter are the significant judgements by management in developing the assumptions for: (i) multiple economic scenarios and the weighting of those scenarios; and (ii) the discounted cash flow projections for certain material credit impaired exposures in relation to the mainland China CRE portfolio. This led to a high degree of auditor