Company: HBCYF
Filing Date: 2025-04-29
Form Type: 6-K
Source: 0001089113-25-000046
Chunk: 40

Company: HSBC HOLDINGS PLC
Filing Date: 2025-04-29
Form: 6-K
Chunk 40
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-impaired (‘POCI‘).

| HSBC Holdings plcEarnings Release 1Q25 on Form 6-K | 41 |

Measurement uncertainty and sensitivity analysis of ECL estimates The recognition and measurement of ECL involves the use of significant judgement and estimation. We form multiple scenarios based on economic forecasts and distributional estimates and apply these to credit risk models to estimate future credit losses. The results are then probability-weighted to determine an unbiased ECL estimate. Management assessed the current economic environment, reviewed the latest economic forecasts and discussed key risks before selecting the economic scenarios and their weightings. The Central scenario is constructed to reflect current macroeconomic expectations. Outer scenarios incorporate the crystallisation of economic and geopolitical risks. Management judgemental adjustments are used where modelled allowance for ECL does not fully reflect the identified risks and related uncertainty, or to capture significant late-breaking events. Methodology At 31 March 2025 , four economic scenarios were used to capture the latest economic expectations and to articulate management’s view of the range of risks and potential outcomes. In each quarter, scenarios are updated with the latest economic forecasts and distributional estimates. Three scenarios – the Upside, Central and Downside – are drawn from external consensus forecasts, market data and distributional estimates of the entire range of economic outcomes. The fourth scenario, the Downside 2, represents management’s view of severe downside risks. For the first quarter of 2025 , scenarios were constructed using our standard methodology and an adjustment applied to the Central scenario, consistent with the approach taken in the fourth quarter of 2024 . Outer scenarios were adjusted in parallel. The adjustment updated forecasts with the latest changes to US tariff policy at that time and incorporated additional assumptions around future tariff rates and policies. Consensus forecasts were assessed to lag these developments. To quantify the impact, the adjustment reduced GDP growth in the most negatively impacted markets by an average of 40bps in the first year of the Central scenario, and by another 20bps in the second year of the forecast. As in the fourth quarter of 202 4 , the adjustment was based on a modelled update to the Central scenario and incorporated a detailed narrative of US trade policy proposals, including specific tariff rates. The results were then layered onto the scenarios, resulting in changes to most variables. Scenarios produced to calculate ECL are aligned to HSBC’s top and emerging risks. Description of economic scenarios The Central scenario reflects the expectation that higher tariffs applied to the US’s trading partners, and reciprocal tariffs announced in turn, will