18th Mar 2016 16:19
Reconciliation of RoRWA measures
| Performance Management During 2015, we targeted a return on average ordinary shareholders' equity of 10%. For internal management purposes we monitor global businesses and geographical regions by pre-tax return on average risk-weighted assets. This metric is calibrated against return on equity ('RoE') and capital requirements to ensure that we are best placed to achieve capital strength and business profitability combined with regulatory capital efficiency objectives. We targeted a return on average RWAs of 2.3% in 2015. |
In addition to the return on average risk-weighted assets ('RoRWA') we measure our performance internally using the non-GAAP measure of adjusted RoRWA, which is adjusted profit before tax as a percentage of average risk-weighted assets adjusted for the effects of foreign currency translation differences and significant items. Excluded from adjusted RoRWA are certain items which distort year-on-year performance as explained on page 48.
We also present the non-GAAP measure of adjusted RoRWA excluding run-off portfolios.
Reconciliation of adjusted RoRWA (excluding run-off portfolios)
2015 | 2014 | |||||||||||
Pre-tax return |
| Average RWAs25 |
| RoRWA24 | Pre-tax return |
| Average RWAs25 | RoRWA24 | ||||
$m |
| $bn |
| % | $m |
| $bn | % | ||||
|
|
|
|
|
|
|
|
| ||||
Reported | 18,867 |
| 1,174 |
| 1.6 | 18,680 | 1,209 | 1.5 | ||||
|
|
|
| |||||||||
Adjusted | 20,418 |
| 1,171 |
| 1.7 | 21,976 | 1,150 | 1.9 | ||||
Run-off portfolios | 447 |
| 84 |
| 0.5 | 847 | 115 | 0.7 | ||||
Legacy credit in GB&M | (5) |
| 35 |
| - | 149 | 48 | 0.3 | ||||
US CML and other26 | 452 |
| 49 |
| 0.9 | 698 | 67 | 1.0 | ||||
|
|
|
|
| ||||||||
Adjusted (excluding run-off portfolios) | 19,971 |
| 1,087 |
| 1.8 | 21,129 | 1,035 | 2.0 | ||||
Reconciliation of reported and adjusted average risk-weighted assets
Year ended 31 December | ||||||
2015 | 2014 |
| Change | |||
$bn | $bn |
| % | |||
|
|
|
| |||
Average reported RWAs25 | 1,174 | 1,209 |
| (2.9) | ||
Currency translation adjustment27 | - | (50) |
| |||
Significant items | (3) | (9) |
|
| ||
|
|
| ||||
Average adjusted RWAs25 | 1,171 | 1,150 |
| 1.8 | ||
For footnotes, see page 99.
Critical accounting estimates and judgements
The results of HSBC reflect the choice of accounting policies, assumptions and estimates that underlie the preparation of HSBC's consolidated financial statements. The significant accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 1 and in the individual Notes on the Financial Statements. The accounting policies listed below are highlighted as they involve a high degree of judgement and estimation uncertainty and have a material impact on the financial statements:
· Impairment of loans and advances: Note 1(j) on page 354;
· Deferred tax assets: Note 8 on page 370;
· Valuation of financial instruments: Note 13 on page 378;
· Impairment of interests in associates: Note 19 on page 402;
· Goodwill impairment: Note 20 on page 406; and
· Provisions: Note 29 on page 421.
In view of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items above, it is possible that the outcomes in the next financial year could differ from those on which management's estimates are based, resulting in the recognition and measurement of materially different amounts from those estimated by management in the 2015 Financial Statements.
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