v3.25.4
Derivative instruments and risk management
 12 Months Ended
Dec. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative instruments and risk management
Note 16: Derivative instruments and risk management

The Bank uses derivatives for risk management purposes and to meet the needs of its customers. The Bank’s derivative contracts principally involve over-the-counter ("OTC") transactions that are negotiated privately between the Bank and the counterparty to the contract and include interest rate contracts and foreign exchange contracts.

The Bank may pursue opportunities to reduce its exposure to credit losses on derivatives by entering into International Swaps and Derivatives Associations ("ISDAs") agreements. Depending on the nature of the derivative transaction, bilateral collateral arrangements may be used, as well. When the Bank is engaged in more than one outstanding derivative transaction with the same counterparty, and also has a legally enforceable master netting agreement with that counterparty, the net marked-to-market exposure represents the netting of the positive and negative exposures with that counterparty. When there is a net negative exposure, the Bank regards its credit exposure to the counterparty as being zero. The net marked-to-market position with a particular counterparty represents a reasonable measure of credit risk when there is a legally enforceable master netting agreement between the Bank and that counterparty.

Certain of these agreements contain credit risk-related contingent features in which the counterparty has the option to accelerate cash settlement of the Bank's net derivative liabilities with the counterparty in the event the Bank's credit rating falls below specified levels or the liabilities reach certain levels.

All derivative financial instruments, whether designated as hedges or not, are recorded on the consolidated balance sheets at fair value within other assets or other liabilities. These amounts include the effect of netting. The accounting for changes in the fair value of a derivative in the consolidated statements of operations depends on whether the contract has been designated as a hedge and qualifies for hedge accounting.

Notional Amounts
The notional amounts are not recorded as assets or liabilities on the consolidated balance sheets as they represent the face amount of the contract to which a rate or price is applied to determine the amount of cash flows to be exchanged. Notional amounts represent the volume of outstanding transactions and do not represent the potential gain or loss associated with market risk or credit risk of such instruments. Credit risk is limited to the positive fair value of the derivative instrument, which is significantly less than the notional amount.

Fair Value
Derivative instruments, in the absence of any compensating up-front cash payments, generally have no market value at inception. They obtain value, positive or negative, as relevant interest rates, exchange rates, equity or commodity prices or indices change. The potential for derivatives to increase or decrease in value as a result of the foregoing factors is generally referred to as market risk. Market risk is managed within clearly defined parameters as prescribed by senior management of the Bank. The fair value is defined as the profit or loss associated with replacing the derivative contracts at prevailing market prices.

Risk Management Derivatives
The Bank enters into interest derivative contracts as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The Bank’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain consolidated balance sheet assets and liabilities so that movements in interest rates do not adversely affect the net interest margin. Derivative instruments that are used as part of the Bank’s risk management strategy include interest rate swap contracts that have indices related to the pricing of specific consolidated balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable-rate interest payments between two parties, based on a common notional principal amount and maturity date. The Bank uses foreign currency derivative instruments to hedge its exposure to foreign currency risk. Certain hedging relationships are formally designated and qualify for hedge accounting as fair value or net investment hedges. Risk management derivatives comprise fair value hedges, net investment hedges and derivatives not formally designated as hedges as described below.

Fair value hedges include designated currency swaps that are used to minimize the Bank's exposure to variability in the fair value of AFS investments due to movements in foreign exchange rates. The effective portion of changes in the fair value of the hedged items attributable to foreign exchange rates is recognized in current year earnings consistent with the related change in fair value of the hedging instrument. For fair value hedges, hedging effectiveness of the hedged item and the hedging instrument are assessed and managed at inception and on an ongoing basis using a partial-term method.

Net investment hedges include designated currency swaps and qualifying non-derivative instruments and are used to minimize the Bank’s exposure to variability in the foreign
currency translation of net investments in foreign operations. The effective portion of changes in the fair value of the hedging instrument is recognized in Accumulated other comprehensive income (loss) ("AOCIL") consistent with the related translation gains and losses of the hedged net investment. For net investment hedges, all critical terms of the hedged item and the hedging instrument are matched at inception and on an ongoing basis to minimize the risk of hedge ineffectiveness.

For derivatives designated as net investment hedges, the Bank follows the method based on changes in spot exchange rates. Accordingly:
- The change in the fair value of the derivative instrument that is reported in AOCIL (i.e., the effective portion) is determined by the changes in spot exchange rates.
- The change in the fair value of the derivative instrument attributable to changes in the difference between the forward rate and spot rate are excluded from the measure
of the hedge ineffectiveness and that difference is reported directly in the consolidated statements of operations under foreign exchange revenue.
Amounts recorded in AOCIL are reclassified to earnings only upon the sale or substantial liquidation of an investment in a foreign subsidiary.

For foreign-currency-denominated financial instruments that are designated as hedges of net investments in foreign operations, the translation gain or loss that is recorded in AOCIL is based on the spot exchange rate between the reporting currency of the Bank and the functional currency of the respective subsidiary. See "Note 22: Accumulated other comprehensive income (loss)" for details on the amount recognized into AOCIL during the current period from translation gain or loss.

Derivatives not formally designated as hedges are entered into to manage the foreign exchange risk of the Bank's exposure. Changes in the fair value of derivative instruments not formally designated as hedges are recognized in foreign exchange revenue.

Client service derivatives
The Bank enters into foreign exchange contracts primarily to meet the foreign exchange needs of its customers. Foreign exchange contracts are agreements to exchange specific amounts of currencies at a future date at a specified rate of exchange. Changes in the fair value of client services derivative instruments are recognized in foreign exchange revenue.

The following table shows the aggregate notional amounts of derivative contracts outstanding listed by type and respective gross positive or negative fair values and classified by those used for risk management (sub-classified as hedging and those that do not qualify for hedge accounting), client services and credit derivatives. Fair value of derivatives is
recorded in the consolidated balance sheets in other assets and other liabilities. Gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities, subject to netting when master netting agreements are in place.
December 31, 2025Derivative instrumentNumber of contractsNotional 
amounts 		Gross
 positive
fair value		Gross
 negative
fair value		Net 
fair value 
Risk management derivatives
Net investment hedgesCurrency swaps3 124,435 — (923)(923)
Fair value hedgesCurrency swaps2 127,685 339 (157)182 
Derivatives not formally designated as hedging instrumentsCurrency swaps59 1,434,912 4,891 (8,551)(3,660)
Subtotal risk management derivatives1,687,032 5,230 (9,631)(4,401)
Client services derivativesSpot and forward foreign exchange70 189,594 984 (786)198 
Total derivative instruments1,876,626 6,214 (10,417)(4,203)
December 31, 2024Derivative instrumentNumber of contractsNotional 
amounts 		Gross
 positive
fair value		Gross
 negative
fair value		Net 
fair value 
Risk management derivatives
Net investment hedgesCurrency swaps1 23,235 986 — 986 
Fair value hedgesCurrency swaps3 139,512 — (4,496)(4,496)
Derivatives not formally designated as hedging instrumentsCurrency swaps54 2,008,630 44,038 (7,181)36,857 
Subtotal risk management derivatives2,171,377 45,024 (11,677)33,347 
Client services derivativesSpot and forward foreign exchange145 217,490 1,681 (1,589)92 
Total derivative instruments2,388,867 46,705 (13,266)33,439 
The nominal amount of derivatives designated as fair value hedging instruments equals the amortized cost of the AFS securities that are designated as being hedged for changes in foreign exchange rates.

In addition to the above, as at December 31, 2025 foreign currency denominated deposits of £211.2 million (December 31, 2024: £277.1 million), SGD0.1 million (December 31, 2024: SGD1.5 million) and CHF 0.4 million (December 31, 2024: CHF 0.4 million) were designated as a hedge of foreign exchange risk associated with the net investment in foreign operations.

The Bank manages derivative exposure by monitoring the credit risk associated with each counterparty using counterparty specific credit risk limits, using master netting arrangements where appropriate and obtaining collateral. The Bank elected to offset in the consolidated balance sheets certain gross derivative assets and liabilities subject to netting agreements.

The Bank also elected not to offset certain derivative assets or liabilities and all collateral received or paid that the Bank or the counterparties could legally offset in the event of default. In the tables below, these positions are deducted from the net fair value presented in the consolidated balance sheets in order to present the net exposures. The collateral values presented in the following table are limited to the related net derivative asset or liability balance and, accordingly, do not include excess collateral received or paid.
Gross fair
 value
 recognized
Less: offset
 applied
 under master
 netting
 agreements
Net fair value
presented in the
 consolidated
 balance sheets		Less: positions not offset in the consolidated balance sheets
December 31, 2025Gross fair value of derivatives
Cash collateral
 received / paid
Net exposures
Derivative assets
Spot and forward foreign exchange and currency swaps6,214 (5,150)1,064 — (326)738 
Derivative liabilities
Spot and forward foreign exchange and currency swaps10,417 (5,150)5,267 — (3,356)1,911 
Net negative fair value(4,203)
Gross fair
 value
 recognized
Less: offset
 applied
 under master
 netting
 agreements
Net fair value
presented in the
 consolidated
 balance sheets		Less: positions not offset in the consolidated balance sheets
December 31, 2024Gross fair value of derivativesCash collateral
 received / paid		Net exposures
Derivative assets
Spot and forward foreign exchange and currency swaps46,705 (11,227)35,478 — (250)35,228 
Derivative liabilities
Spot and forward foreign exchange and currency swaps13,266 (11,227)2,039 — (682)1,357 
Net positive fair value33,439 
The following tables show the location and amount of gains (losses) recorded in either the consolidated statements of operations or consolidated statements of comprehensive income on derivative instruments outstanding.
Year ended
Derivative instrumentConsolidated statements of operations line itemDecember 31, 2025December 31, 2024December 31, 2023
Spot and forward foreign exchangeForeign exchange revenue105 (24)(47)
Currency swaps, not designated as hedgeForeign exchange revenue(40,517)53,714 (14,639)
Currency swaps - fair value hedgesForeign exchange revenue4,679 (9,857)2,837 
Total net gains (losses) recognized in net income(35,733)43,833 (11,849)
Derivative instrumentConsolidated statements of comprehensive income line itemDecember 31, 2025December 31, 2024December 31, 2023
Currency swaps - net investment hedgeUnrealized net gains (losses) on translation of net investment in foreign operations(1,909)1,235 (35)
Total net gains (losses) recognized in comprehensive income(1,909)1,235 (35)