#1CLSA Investors' Forum Anita Fung, Chief Executive Officer, Hong Kong 10 September 2012 HSBC#2Forward-looking statements This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition, results of operations and business of the Group. These forward- looking statements represent the Group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in HSBC Holdings plc Annual Report and Accounts 2011 and Interim Report 2012. Past performance cannot be relied on as a guide to future performance. This presentation contains non-GAAP financial information. Reconciliation of non-GAAP financial information to the most directly comparable measures under GAAP is provided in the 'Constant currency and underlying reconciliations' supplement available at www.hsbc.com. 2#3Agenda Financial highlights: Hong Kong and Rest of Asia-Pacific Section 1 Macroeconomic environment Section 2 Hong Kong strategic priorities Section 3 A leading bank for RMB internationalisation Section 4 Capacity for sustainable growth in Hong Kong Section 5 3#4Financial highlights: Hong Kong and Rest of Asia-Pacific HSBC#5HSBC in Asia – 1H12 financial highlights PBT, 1H12 (USDbn, reported) Financial highlights HK ROAP Asia % v 1H11 Net operating income² (USDbn) 6.1 5.9 12.1 12 Rest of Asia-Pacific 3.8 I Hong Kong 4.4 Loan impairment charges (USDbn) (0.03) (0.30) (0.33) 164 Total: 8.11 Loans and advances (gross) (USDbn) 166 130 296 53 Reported PBT for Asia of USD8.1bn, up 19% v 1H11 Pre-tax return on risk- weighted assets (%) 7.1 3.0 n/d4 n/a 64% of Group PBT Notes: 1 not adjusted for rounding 2 Before loan impairment charges and other credit risk provisions 3 Change since 31 Dec 2011 4 Not disclosed 5#6Asia-Pacific: strategic direction Connecting Asia and the world Expand leadership in 1 Greater China Maintain leadership in Hong Kong • Continued leadership as mainland China's top foreign bank • Grow RMB deposits • Taiwan 2 Build scale in other key markets • Continue to invest to build scale in key markets: - - | | | - India Singapore Malaysia Indonesia Australia Vietnam 3 Maintain leadership in connectivity • Be the leading international bank for RMB worldwide • Focus resources in other markets to maintain leadership in intermediating Trade, Capital and Wealth flows Strategic actions • Grow quality assets and build scale in key markets Deepen customer relationships to grow non-interest income Target RoRWA 3.4-4.2% • Build customer deposits to capture benefits of rising interest rates • Continue cross-border leadership in trade, capital and wealth#7Macroeconomic environment HSBC#8Asia economy GDP (%) 2010 2011 2012F 2013F • Moderation in regional GDP growth due to milder export growth and falling consumer demand China 10.4 9.2 8.0 8.3 Hong Kong 7.1 5.0 2.5 4.5 • Further risks to growth - European instability, lacklustre US recovery, inflationary uncertainty India 8.4 6.5 6.4 7.1 Indonesia 6.2 6.5 6.1 6.4 Economic uncertainty impacting revenue growth Korea 6.3 3.6 3.2 4.0 Malaysia 7.2 5.1 4.3 5.0 Social instability is an increasing concern Philippines 7.6 3.9 4.8 4.8 Singapore 14.8 5.0 2.8 4.3 Taiwan 10.7 4.0 2.5 4.1 Thailand 7.8 0.1 5.0 4.7 Regulators increasingly cautious on capital and liquidity, but remain supportive China remains on course for soft landing; expect a strong mix of monetary and fiscal easing Source: Focus Economics Consensus Forecast 8#9China/Hong Kong economic outlook Hong Kong: Moderating GDP growth % y-o-y China: Economy slowing, not faltering % y-o-y (%) 20 % y-o-y 8.0 15 10 t 7.0 6.0 5.0 4.0 3.0 5 2.0 1.0 ܘ܂ 0 0.0 33 03 04 05 06 07 08 09 10 11 12 GDP grow th y-o-y GDP grow th q-o-q saar Source: CEIC, HSBC Global Insights China: PMI % y-o-y (% yr, 3mma) ! HSBC forecast % q-o-q semi-annual I I I 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F Real GDP % y-o-y - Real GDP % q-o-q sa Source: HK Censtatd, CEIC, HSBC Global Insights Hong Kong: Easing inflationary pressures % y-o-y % y-o-y 25 20 N5 60 7.0 6.0 55 5.0 15 4.0 50 3.0 10 2.0 45 5 1.0 0 40 0.0 04 05 06 07 08 09 10 11 12 IP (Lhs) HSBC Manufacturing PMI (Rhs, lead by 2 months) Source: Markit, CEIC, HSBC Global Insights 9 ! HSBC forecast I I 3.5 3.0 3221 50505 2.5 2.0 1.5 1.0 0.5 0.0 (0.5) (1.0) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F CPI% y-o-y Source: HK Censtatd, CEIC, HSBC Global Insights#10Hong Kong strategic priorities HSBC#11Hong Kong strategic priorities Capturing the connectivity Leading RMB international bank Developing opportunities arising from increased China wealth • Tapping into mainland Chinese enterprises "going out" Capturing business arising from HK and international companies "going into China" • Leveraging HK's strategic position as the leading offshore RMB centre • Capturing market share from increasing RMB trade settlement and capital flows • Capitalising on rising cross-border business opportunities Maintaining market leadership PBT, 1H12 (USDm, reported) • Consolidating market leadership in total deposits, Mandatory Provident Fund, Mortgages, Credit cards, HKD and offshore RMB bonds and FX Maintaining scale in other strategic businesses Notes: 1 Before loan impairment charges and other credit risk provisions 2 Profit before tax basis Reported 2011 1H 11 1H 12 Net operating income¹ (USDbn) 10.7 5.4 6.1 RBWM (1,753) ■CMB (1,001) Profit before tax (USDbn) 5.8 3.1 3.8 GBM (786) GPB (122) Other (99) Cost efficiency ratio (%) 44.5 43.2 39.1 Total: 3,761 Return on risk-weighted assets² (%) 5.3 5.6 7.1 11#12Rise of China Significant economic benefits for Hong Kong People • High net worth individuals (ie. individuals with wealth over RMB10m) in China reached 1.2m by the end of 2011, with a five-year average growth rate of 29%1 • Spending power spilled over to HK In 2011, 25.3m Mainland tourists to HK and 16.2m to Macau 2 Investment HK as a gateway for foreign enterprises to access the China market and vice versa HK is the largest source of FDI for China, accounting for 66% of the total amount in 20117 60% of China's Overseas Direct Investment (ODI) flows to HK8, soared 67.7% during Jan-Jul12 45% of Mainland accumulated foreign capital comes from HK3 710 Mainland companies listed in HK9 by the end of Jul 12 Trade China is the largest exporting country USD1.9trn total exports in 20113 By 2020, total trade will surge to around USD16.7trn (19.5% of global trade), with commodity trade export of USD7.6trn (22.3% of global trade)4 HK/China trade closely linked 47% exports/45% imports of HK are to/from mainland China5 RMB2trn, or 9% of China's global trade, was settled in RMB in 20116 China 10 • 2nd largest economy in the world ⚫ GDP grew 35x in three decades (USD200bn in 1981 to USD7trn in 2011) Currency RMB internationalisation Reserve currency potential Targeting full convertibility Notes: 1 Source: "2012 China Private Banking Development Report", CITIC Bank & Central University of Finance and Economics 2 Source: Tourism Commission, Hong Kong SAR; China Tourism Academy 3 Source: Ministry of Commerce, PRC 4 Quoted from Pei Changhong (K, Institute of Economics Chinese Academy of Social Sciences) 12 5 Source: Census and Statistics Department, Hong Kong SAR 6 Source: PBoC 7 Source: Ministry of Commerce of the PRC 8 Source: HKMA 9 Source: HKEX 10 Source: World Economic outlook-IMF, APR12#13Connecting Guangdong globally through Hong Kong Guangdong and Hong Kong in context Guizhou Vietnam Guangxi Hainan Note: 1 Source: National Bureau of Statistics of China 2 CEPA: Closer Economic Partnership Arrangement Guangdong Foshan Zhongshan Zhuhai Guangzhou Dongguan Huizhou Shenzhen Opportunity for HSBC Hong Kong . Guangdong importance to China, 11% of GDP, 9% of population1 An average of 11.5% annual GDP growth over the past 5 years1 Financial hub and foreign trade leader, exports still account for 65% of GDP, trade represents 91% of GDP1 Top down policy support for Guangdong and HK cooperation - Supplement IX of CEPA² - "Strengthen closer cooperation with Hong Kong and Macau" under Guangdong's 12th Five-Year Plan - Financial integration in the Pearl River Delta region - Qianhai Shenzhen-HK Modern Service Industry Cooperation Zone • Significant opportunities for HSBC in Guangdong region to build on strong Hong Kong presence 13#14The evolution of Hong Kong as a financial centre Financial sector's contribution to GDP1 2005-2010 average annual growth: 9% vs. 4% growth rate of GDP HKDbn % 2,000 15.2 15.4 18 16 12.7 11.9 14 1,500 12 10 1,000 500 236 262 151 172 0 2000 2005 Value Added from Financial Sector 2009 2010 GDP % of GDP 8 6420 Profitability of the financial sector (Y-o-Y growth of PBT & RoA)² 30% 20% 10% 0% (10%) (20%) (30%) (40%) 2006 2007 2008 1.60% 18% 1.01% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2009 2010 2011 A good place to do business A mature and competitive financial industry1: Currently 153 fully licensed banks in HK - ~10,000 financial services companies in HK - Employ over 220,000 staff- more than 6% of total employment • World's largest Initial Public Offering (IPO) market in 2010 and 20112 • World's sixth-largest exchange, as measured by market capitalisation² Approximately USD1.3trn in AUM in Hong Kong fund management sector² Leading hub for hedge funds investing in Asia² • Second-largest hub for Private Equity funds in Asia² • Premier offshore RMB business centre • Largest hub for Qualified Foreign Institutional Investors (QFII) and Qualified Domestic Institutional Investors (QDII) managers² ⚫ AAA sovereign credit rating of HK SAR by S&P Notes: y-o-y grow th of pre-tax operating profit (Lhs) Post-tax return on average assets (Rhs) 1 Census and Statistics Department, HK SAR 2 HKMA 14#15Hong Kong contribution to Group performance 1H12 PBT contribution from faster growing regions (USDm, reported) 3,761 HK 3,081 4,372 3,742 ROAP 1H12 772 747 1H 12 Group PBT: USD12.7bn 1H12 PBT contribution by Global Business (USDm, reported) Retail Banking and Wealth Management¹ 3,474 Commercial Banking 214 1,753 (27%) 682 381 1,001 (23%) 140 Global Banking and Markets 1,145 1,151 549 MENA LatAm 1H11 15 Note: 286 1,043 649 921 786 (16%) 341 1,250 774 Global Private Banking 1,734 236 10 41 4 122 (23%) HK ROAP EU MENA NA LatAm 1 EU's RBWM business reported a loss of USD92m in 1H12 114#16A leading bank for RMB internationalisation HSBC#17Harnessing the opportunity as a leading bank for RMB internationalisation A Global 1 Notes: Trading Currency June 2009 Pilot launch of cross-border RMB trade settlement scheme June 2010 Expansion of cross-border RMB trade settlement scheme August 2011 Announcement on nationwide expansion of the scheme Trade settled in RMB totaled RMB2.08trn¹ in 2011 March 2012 Expansion of RMB export trade settlement from businesses on the Mainland Designated Enterprises (MDES) list to all companies qualified for external trade The MDE list was replaced by a watch list in June, fully opening the cross- border RMB trade settlement channel 1 Source: PBOC 2 CNH is the name used in the market to refer to offshore deliverable RMB 3 Qualified Foreign Institutional Investors 4 Source: Wall Street Journal • A Global 2 Investment Currency • July 2010 Establish the offshore RMB (CNH2) market in HK August 2010 China inter-bank bond market (CIBM) opened to selected offshore RMB Financial Institutions and central banks January 2011 Mainland Enterprises can make overseas investment in RMB in the form of ODI August 2011 Mainland corporates can issue RMB bonds in Hong Kong October 2011 Formalisation of RMB Foreign Direct investment (FDI) RMB21bn for 110 projects approved by end December December 2011 RMB QFII³ launched allowing HK subsidiaries of Chinese asset management and securities firms to invest onshore April 2012 RMB QFII³ expanded by RMB50bn and allowed to be used in issuing A-share ETFs CIBM eligible investors expanded to supranationals, sovereign wealth funds and insurers May 2012 Formalisation of RMB bond issuance in Hong Kong by Mainland non- financial firms 19 countries have signed swap agreements with China, totaling RMB1.7trn June 2012 The first RQFII A-share ETF authorised for listing on the SEHK Notice from PBOC on "Clarifying the Operating Details of RMB Settlement for FDI" August 2012 Authorised Institutions (Als) can offer RMB services to personal customers who are non-Hong Kong residents 17 3 . A Global Reserve Currency Accepted across world: For investment, financing, and payment purposes As a reserve, intervention and anchor currency Nigeria has added the equivalent of USD500m in RMB to its reserves4 • Chile, Thailand, Brazil and Venezuela are understood to have begun efforts to • include RMB in reserve portfolio¹ Japan, Korea and Thailand have approved quotas of RMB65bn, 20bn and 7bn respectively to invest in CIBM The International Bank for Reconstruction and Development (IBRD) & the International Development Association (IDA) to invest in CIBM through PBOC Indonesia's central bank started buying bonds in CIBM Countries that have indicated they will add RMB to their reserves account for an aggregated 33% of world total FX holdings excluding China#18Hong Kong's global RMB leadership RMB Deposits in Hong Kong¹ Dec 2010 RMB315bn Dec 2011 RMB588bn 87% RMB Trade Settlement HK Mainland China¹ 2010 RMB369bn 2011 RMB1,941bn ↑ 5x June 2012 RMB558bn 5% (vs. Dec 2011) 1H 2012 RMB1,210bn 51% (Y-o-Y) RMB Trade Settlement China RoW² 2010 RMB506bn 2011 RMB2,080bn ↑ 4x 1H 2012 RMB1,252bn ↑ 147% (vs. 2010) Dim Sum Bonds1 (excluding CD) 2010 16 issuers RMB35.8bn 2011 87 issuers RMB108bn 3x Notes: 1 Source: HKMA 2 Source: Ministry of Commerce of the People's Republic of China and the People's Bank of China ("PBOC") 18 1H 2012 RMB72.7bn ↑ 65% (Y-o-Y)#19Capacity for sustainable growth in Hong Kong HSBC#20Capacity for sustainable growth in HK • Hong Kong is a sound and dynamic financial centre Hong Kong is a critical element of the Group • Strong performance in 1H12 • Good progress in achieving key strategic priorities across Global Businesses • Focused on growth opportunities in a challenging environment • China and RMB provide sustainable growth opportunities Accelerating collaboration between Global Businesses Strong liquidity provides foundation for further balance sheet and revenue growth 20 20#21Contacts and further information Hugh Pye Head of Investor Relations, Asia-Pacific [email protected] +852 2822 4908 Guy Lewis Senior Manager, Investor Relations [email protected] +44 (0) 207 992 1938 Bloomberg / Website HSBA LN <EQUITY> <GO> HSBC <CORP> <GO> www.hsbc.com/1/2/investor-relations 21