Company: HBCYF
Filing Date: 2025-02-20
Form Type: 20-F
Source: 0001089113-25-000040
Chunk: 353

Company: HSBC HOLDINGS PLC
Filing Date: 2025-02-20
Form: 20-F
Chunk 353
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 exercises. For our Hong Kong portfolio, we completed a short- and long-term scenario analysis exercise during late 2023 and early 2024 at the request of the HKMA. Our analysis shows that over the longer term, we expect minimal losses to materialise when considering the Current Commitments scenario. Although the severity of climate perils is expected to worsen over time, our overall losses remain low under a severe Downside Physical Risk scenario.

| 256 | HSBC Holdings plcAnnual Report on Form 20-F |

Risk review

In 2024, we continued to develop our approach to assess impacts from severe acute physical risk events with an exploratory new near- term Severe Climate Stress scenario. Within all scenarios, loss impacts are assessed by considering borrowers’ ability and willingness to service their debts, including customers’ affordability incorporating increased debt servicing costs and the impact on property valuation. When quantifying impacts from climate events, insurance availability is a key mitigation of loss. Our scenario analysis methodology was enriched further in 2024 by enhancing insurance availability and assumptions related to insurance premium costs. This approach has been benchmarked with the insurance industry, based on a calculation of average annualised loss. When assessing impacts from climate risk, we note that there are several limitations as mentioned previously. Specifically for our retail mortgage portfolio, these limitations include: – Lack of historical experience and limited benchmark data, especially around loss quantification, there is strong reliance on external peril models and vulnerability assumptions. – Accuracy of peril projection data relies upon the exact coordinates of a property. The geocoding process can lead to inaccurate results for some properties where address data is incomplete or in regions where geocoding services are less accurate. – Additionally, a key assumption in quantifying the impacts from perils is the level of resilience a particular building archetype has, for example age of construction, material or relevant building standards. This information is often limited, and assumptions are made. Projected peril risk Perils are assessed that are material to each region and where we have the external peril data available. Flooding has the potential to be the peril having the largest impact on our portfolio. When assessing the risk in the portfolio we assess both the inherent and residual risks. An inherent view considers property location, whereas the residual risk incorporates the resilience a particular building has to the peril impacts. The inherent flood risk is shown below, and outlines the percentage of properties and their corresponding flood depths predicted in a 1-in-100 year event. In 2024, we provided further granularity in our flood