RNS Announcement
Liquidity and funding
Page
App1
Tables
Liquidity and funding ................................
276
Primary sources of funding ............................
Liquidity and funding in 2013 ..................
214
Customer deposit markets ..............................
Wholesale funding market .............................
Liquidity regulation ..................................
215
Management of liquidity and funding risk ...................................................................
Inherent liquidity risk categorisation ..............
Core deposits .................................................
277
Advances to core funding ratio ......................
Advances to core funding ratios ...................................
Stressed coverage ratios .................................
Stressed one-month and three-month coverage ratios ..
216
Stressed scenario analysis ...............................
Liquid assets of HSBC's principal operatingentities .......................................................
278
Liquid assets of HSBC's principal entities .....................
217
Net contractual cash flows .............................
Net cash flows for inter-bank loans and intra-group deposits and reverse repo, repo and short positions ..
218
Wholesale debt monitoring ............................
279
Liquidity behaviouralisation ...........................
280
Contingent liquidity risk arising fromcommitted lending facilities .................
The Group's contractual undrawn exposures monitored under the contingent liquidity risk limit structure ...............
219
Sources of funding .....................................
Repos and stock lending .................................
Funding sources and uses ............................................
221
Cross-border intra-Group and cross-currency liquidity and funding risk ............................
Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities .................................................................................
222
Encumbered and unencumbered assets ...
223
Summary of assets available to support potential future funding and collateral needs (on and off-balance sheet).................................................................................
The effect of active collateral management ...
224
Off-balance sheet collateral received andpledged for reverse repo and stockborrowing transactions ...............................
Off-balance sheet non-cash collateral receivedand pledged for derivative transactions .......
Analysis of on-balance sheet encumbered and unencumbered assets ...................................
Analysis of on-balance sheet encumbered andunencumbered assets ...............................................
225
Additional contractual obligations ..................
226
Additional information ..................................
227
Contractual maturity of financial liabilities .................................................
Cash flows payable by HSBC under financial liabilitiesby remaining contractual maturities ........................
228
Management of cross-currency liquidity and funding risk ..........................................
HSBC Holdings ..........................................
229
281
Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities .........
1. Appendix to Risk - risk policies and practices.
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. The risk arises from mismatches in the timing of cash flows.
There were no material changes to our policies and practices for the management of liquidity and funding risks in 2013.
A summary of our current policies and practices regarding liquidity and funding is provided in the Appendix to Risk on page 276.
Our liquidity and funding risk management framework
The objective of our liquidity framework is to allow us to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations.
Our liquidity and funding risk management framework requires:
· liquidity to be managed by operating entities on a stand-alone basis with no implicit reliance on the Group or central banks;
· all operating entities to comply with their limits for the advances to core funding ratio; and
· all operating entities to maintain a positive stressed cash flow position out to three months under prescribed Group stress scenarios.
Liquidity and funding in 2013
The liquidity position of the Group strengthened in 2013, and we continued to enjoy strong inflows of customer deposits and maintained good access to wholesale markets. During 2013, customer accounts grew by 11% (US$143bn) while loans and advances to customers increased by 8% (US$83bn), leading to a small decrease in our advances to deposits ratio to 73% (2012: 74%).
HSBC UK recorded a decrease in its advances to core funding ('ACF') ratio to 100% at 31 December 2013 (2012: 106%) mainly because core deposits increased more than advances.
The Hongkong and Shanghai Banking Corporation recorded a decrease in its ACF ratio to 72% at 31 December 2013 (2012: 73%) mainly because core deposits increased more than advances.
HSBC USA recorded an increase in its ACF ratio to 85% at 31 December 2013 (2012: 78%). This increase was mainly because surplus core deposits were deployed into loans and advances to customers.
HSBC UK, The Hongkong and Shanghai Banking Corporation and HSBC USA are defined in footnotes 41 to 43 on pages 264 and 265. The ACF ratio is discussed on page 215.
Customer deposit markets
Customer accounts increased by 11% in 2013. After excluding repo balances, the year-on-year increase was 4% (US$50bn).
Retail Banking and Wealth Management
RBWM customer account balances grew by 3% with significant growth in our home markets partly offset by reductions in deposit balances in certain markets either due to surplus funding requirements or disposal of our operations.
Commercial Banking
Customer accounts rose by 5% in 2013, mainly from increases in Payments and Cash Management accounts. The growth in these customer accounts and the strong growth in payment volumes was evidence of the correlation between this funding source and the operational services that HSBC provides to the CMB customer base.
Global Banking and Markets
Customer accounts increased by 36% in 2013. After excluding repo balances with customers, GB&M deposits rose by 8% year on year, with the majority resulting from increases in Payments and Cash Management accounts.
Global Private Banking
GPB customer account balances decreased by 9% as we continued to reposition our business from offshore to domestic banking and refocus our client base towards higher net worth relationships. Outflows from the adoption of stricter compliance and tax transparency standards also contributed to the overall decline.
Wholesale funding markets
Conditions in the bank wholesale debt markets were generally positive in 2013, supported by strong investor demand and improvements in the economic outlook in developed markets, although there was some volatility caused by interest rate uncertainty. Subordinated debt issuance volumes increased as investor confidence grew and further regulatory clarity emerged. While there was some regional variation, the overall volume of term debt issued by banks globally decreased from previous years, primarily due to reduced issuance in the UK and Europe.
In 2013, we issued the equivalent of US$15.6bn (2012: US$10.5bn) of term debt securities in the public capital markets in a range of currencies and maturities from a number of Group entities.
Liquidity regulation
(Unaudited)
The European adoption of the Basel Committee framework via CRD IV was published in June 2013. They require the reporting of the liquidity coverage ratio ('LCR') and the net stable funding ratio ('NSFR') from March 2014. The regulatory LCR outlined in the regulation document has been initially set at 60% from January 2015, increasing to 100% by January 2018, although individual member states are able to set a higher standard. We expect the PRA to set an 80% LCR requirement from January 2015. During 2013, additional guidance was given on the definition of the LCR, much of which takes the form of an impact assessment and recommendations that have been submitted to the European Commission by the EBA. We expect these recommendations to be materially adopted by the Commission into the final LCR delegated act on 30 June 2014. Regarding the finalisation of the NSFR metric, in January 2014 the Basel Committee on Banking Supervision issued a consultation document on a revised framework. This is intended to be implemented as a minimum standard at the beginning of January 2018.
Management of liquidity and funding risk
Our liquidity and funding risk management framework ('LFRF') employs two key measures to define, monitor and control the liquidity and funding risk of each of our operating entities. The advances to core funding ratio is used to monitor the structural long-term funding position, and the stressed coverage ratio, incorporating Group-defined stress scenarios, is used to monitor the resilience to severe liquidity stresses.
The three principal entities listed in the tables below represented 66% (2012: 62%) of the Group's customer accounts (excluding repos). Including the other principal entities, the percentage was 94% (2012: 94%).
Advances to core funding ratio
The table below shows the extent to which loans and advances to customers in our principal banking entities were financed by reliable and stable sources of funding.
ACF limits set for principal operating entities at 31 December 2013 ranged between 80% and 115%.
Advances to core funding ratios40
At 31 December
2013
2012
%
HSBC UK41
Year-end .............................
100
106
Maximum ............................
107
Minimum ............................
Average ...............................
104
103
The Hongkong and Shanghai Banking Corporation42
72
73
77
75
70
71
74
HSBC USA43
85
78
86
68
82
Total of HSBC's otherprincipal entities44
93
91
92
89
88
For footnotes, see page 264.
Core funding represents the core component of customer deposits and any term professional funding with a residual contractual maturity beyond one year. Capital is excluded from our definition of core funding.
Stressed coverage ratios
The ratios tabulated below express stressed cash inflows as a percentage of stressed cash outflows over both one-month and three-month time horizons. Operating entities are required to maintain a ratio of 100% or greater out to three months.
Inflows included in the numerator of the stressed coverage ratio are generated from liquid assets net of assumed haircuts, and cash inflows related to assets contractually maturing within the time period.
In general, customer advances are assumed to be renewed and as a result do not generate a cash inflow.
Stressed one-month and three-month coverage ratios40
(Audited)
Stressed one-month coverage
ratios at 31 December
Stressed three-month coverage
Year-end ..............................................................
114
109
Maximum .............................................................
117
Minimum .............................................................
108
101
Average ................................................................
112
102
119
129
126
131
134
113
123
118
110
137
130
115
127
Total of HSBC's other principal entities44
121
128
120
111
The one-month stressed coverage ratio for HSBC UK decreased due to higher contractual repos on level 3 assets maturing beyond one month and higher cash outflows modelled for non-core deposits. The three-month stressed coverage ratio increased due to the reclassification of equities that qualify as level 3 liquid assets under LFRF.
The stressed coverage ratios for The Hongkong and Shanghai Banking Corporation decreased as a result of a methodology change with regards to intraday liquidity requirements.
The stressed coverage ratios for HSBC USA decreased as the surplus liquidity was deployed into loans and advances to customers.
The stressed coverage ratios for the total of HSBC's other principal entities remained broadly unchanged.
Liquid assets of HSBC's principal operating entities
The table below shows the estimated liquidity value (before assumed haircuts) of assets categorised as liquid used for the purposes of calculating thethree-month stressed coverage ratios, as defined under the LFRF.
Unencumbered assets held as a consequence of a reverse repo transaction with a residual contractual maturity within the stressed coverage ratio time period and unsecured interbank loans maturing within three months are not included in liquid assets, but are treated as contractual cash inflows.
Liquid assets are held and managed on a stand-alone operating entity basis. Most of the liquid assets shown are held directly by each operating entity's Balance Sheet Management function, primarily for the purpose of managing liquidity risk, in line with the LFRF.
Liquid assets also include any unencumbered liquid assets held outside Balance Sheet Management for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to Balance Sheet Management.
For a summary of our liquid asset policy and definitions of the classifications shown in the table below, see the Appendix to Risk on page 278.
Liquid assets of HSBC's principal entities
Estimated liquidity value45
31 December 2013
31 December 2012
US$m
Level 1 ................................................................................................................................
168,877
138,812
Level 2 ................................................................................................................................
1,076
374
Level 3 ................................................................................................................................
63,509
27,656
233,462
166,842
108,713
112,167
5,191
5,740
7,106
3,968
121,010
121,875
43,446
60,981
12,709
15,609
5,044
5,350
Other ..................................................................................................................................
8,000
6,521
69,199
88,461
144,774
154,445
12,419
18,048
13,663
6,468
-
2,447
170,856
181,408
All assets held within the liquid asset portfolio are unencumbered.
Liquid assets held by HSBC UK increased as a result of a rise in customer accounts, which led to an increase in the level of non-core deposits and, consequently, liquid assets. Liquid assets also increased due to the reclassification of equities qualifying as liquid assets under LFRF.
Liquid assets held by The Hongkong and Shanghai Banking Corporation remained broadly unchanged.
Liquid assets held by HSBC USA decreased as a result of the increase in loans and advances to customers.
Net contractual cash flows
The following table quantifies the contractual cash flows from interbank and intra-Group loans and deposits, and reverse repo, repo (including intra-Group transactions) and short positions for the principal entities shown. These contractual cash inflows and outflows are reflected gross in the numerator and denominator, respectively, of the one and three-month stressed coverage ratios and should be considered alongside the level of liquid assets.
Outflows included in the denominator of the stressed coverage ratios include the principal outflows associated with the contractual maturity of wholesale debt securities reported in the table headed 'Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities' on page 222.
Net cash inflows/(outflows) for interbank and intra-Group loans and deposits and reverse repo, repo and short positions
At 31 December 2013
At 31 December 2012
Cash flows
within
one month
from one to
three months
Interbank and intra-Group loans and deposits
HSBC UK41 ........................................................................
(19,033)
(5,272)
(16,464)
(1,429)
The Hongkong and Shanghai Banking Corporation42 .........
2,314
7,487
4,402
9,685
HSBC USA43 ......................................................................
(24,268)
729
(30,269)
(473)
Total of HSBC's other principal entities44 .........................
4,295
10,149
5,419
10,511
Reverse repo, repo, stock borrowing, stock lending and outright short positions (including intra-Group)
(39,064)
149
(4,184)
(13,776)
12,662
4,297
13,672
2,501
(11,001)
(4,003)
62
(40,223)
9,551
(31,951)
(231)
Net cash flow arising from interbank and intragroup loans and deposits
Under the LFRF, a net cash inflow within three months arising from interbank and intragroup loans and deposits will give rise to a lower liquid asset requirement. Conversely, a net cash outflow within three months arising from interbank and intra-Group loans and deposits will give rise to a higher liquid assets requirement.
Net cash flow arising from reverse repo, repo, stock borrowing, stock lending and outright short positions (including intra-Group)
A net cash inflow represents liquid resources in addition to liquid assets because any unencumbered asset held as a consequence of a reverse repo transaction with a residual contractual maturity within the stressed coverage ratio time period is not reflected as a liquid asset.
The impact of net cash outflow depends on whether the underlying collateral encumbered as a result will qualify as a liquid asset when released at the maturity of the repo. The majority of the Group's repo transactions are collateralised by liquid assets and, as such, any net cash outflow shown is offset by the return of liquid assets, which are excluded from the liquid asset table above.
Contingent liquidity risk arising from
committed lending facilities
The Group's operating entities provide commitments to various counterparties. In terms of liquidity risk, the most significant risk relates to committed lending facilities which, whilst undrawn, give rise to contingent liquidity risk as they could be drawn during a period of liquidity stress. Commitments are given to customers and committed lending facilities are provided to consolidated multi-seller conduits established to enable clients to access flexible market-based sources of finance (see page 550), consolidated securities investment conduits and third‑party sponsored conduits.
The consolidated securities investment conduits includes Solitaire and Mazarin Funding Limited ('Mazarin') (see page 551). They issue asset-backed commercial paper secured against the portfolio of securities held by them. At 31 December 2013, HSBC UK had undrawn committed lending facilities to these conduits of US$15bn (2012: US$18bn), of which Solitaire represented US$11bn (2012: US$13bn) and the remaining US$4bn (2012: US$5.1bn) pertained to Mazarin. Although HSBC UK provides a liquidity facility, Solitaire and Mazarin have no need to draw on it so long as HSBC purchases the CP issued, which it intends to do for the foreseeable future. At 31 December 2013, the commercial paper issued by Solitaire and Mazarin was entirely held by HSBC UK. Since HSBC controls the size of the portfolio of securities held by these conduits, no contingent liquidity risk exposure arises as a result of these undrawn committed lending facilities.
The table below shows the level of undrawn commitments to customers outstanding for the five largest single facilities and the largest market sector, and the extent to which they are undrawn.
The Group's contractual undrawn exposures at 31 December monitored under the contingent liquidity risk limit structure
HSBC Canada
US$bn
Commitments to conduits
Consolidated multi-sellerconduits
- total lines ......................
10.1
7.8
2.5
2.3
1.0
- largest individual lines ...
0.7
0.5
0.8
Consolidated securities investment conduits- total lines .......................
14.8
18.1
Third party conduits- total lines .......................
Commitments to customers
- five largest46 .................
4.4
6.0
6.3
1.5
1.7
2.4
2.1
- largest market sector47 ..
9.5
11.0
8.2
7.5
3.4
4.5
2.7
Sources of funding
Our primary sources of funding are customer current accounts and customer savings deposits payable on demand or at short notice. We issue wholesale securities (secured and unsecured) to supplement our customer deposits and change the currency mix, maturity profile or location of our liabilities.
The 'Funding sources and uses' table below, which provides a consolidated view of how our balance sheet is funded, should be read in the light of the LFRF, which requires operating entities to manage liquidity and funding risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. The assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.
The level of customer accounts continued to exceed the level of loans and advances to customers. Excluding the effect of repos from customer accounts and reverse repos from loans and advances to customers, the advances to deposits ratio at 31 December 2013 was 73% (2012: 73%). The positive funding gap was predominantly deployed in liquid assets; cash and balances with central banks and financial investments, as required by the LFRF.
Loans and other receivables due from banks continued to exceed deposits taken from banks. The Group remained a net unsecured lender to the banking sector.
Repos and stock lending
GB&M provides collateralised security financing services to its clients, providing them with cash financing or specific securities. When cash is provided to clients against collateral in the form of securities, the cash provided is recognised on the balance sheet as a reverse repo. When securities are provided to clients against cash collateral the cash received is recognised on the balance sheet as a repo or, if the securities are equity securities, as stock lending.
Each operating entity manages its collateral through a central collateral pool, in line with the LFRF. When specific securities need to be delivered and the entity does not have them currently available within the central collateral pool, the securities are borrowed on a collateralised basis. When securities are borrowed against cash collateral the cash provided is recognised on the balance sheet as a reverse repo or, if the securities are equity securities, as stock borrowing.
Operating entities may also borrow cash against collateral in the form of securities, using the securities available in the central collateral pool. Repos and stock lending can be used in this way to fund the cash requirement arising from securities owned outright by
Markets to facilitate client business, and the net cash requirement arising from financing client securities activity.
Reverse repos, stock borrowing, repos and stock lending are reported net when the IFRSs offsetting criteria are met. In some cases transactions to borrow or lend securities are collateralised using securities. These transactions are off-balance sheet.
Securities reflected on the balance sheet that are pledged as collateral against an existing liability or lent are reflected as encumbered for the duration of the transaction. When securities are received as collateral or borrowed, and when we have the right to sell or re-pledge these securities, they are reflected as available and unencumbered for the duration of the transaction, unless re-pledged or sold. Further analysis regarding the encumbrance of securities resulting from repos and stock lending and available unencumbered assets arising from reverse repos and stock borrowing is provided under the heading 'Encumbered and unencumbered assets' starting on page 223.
In the normal course of business we do not seek to utilise repo financing as a source of funding to finance customer assets, beyond the collateralised security financing activities within Global Markets described above.
The original contractual maturity of reverse repo, stock borrowing, repo and stock lending is short term with the vast majority of transactions being for less than 90 days.
The residual contractual maturity profile of the balance sheet is set out on in Note 33 on the Financial Statements.
Any security accepted as collateral for a reverse repo or stock borrowing transaction must be of very high quality and its value subject to an appropriate haircut. Securities borrowed under reverse repo or stock borrowing transactions can only be recognised as part of the liquidity asset buffer for the duration of the transactions and only if the security received is eligible under the liquid asset policy within the LFRF.
Credit controls are in place to ensure that the fair value of any collateral received remains appropriate to collateralise the cash or fair value of securities given.
In 2013, GB&M changed the way it manages repo and reverse repo activities in the Credit and Rates businesses, which were previously being managed in a trading environment. During the year, the repo and reverse repo business activities were organised into trading and non-trading portfolios, with separate risk management procedures. As demonstrated in the 'Funding sources and uses' table below, this resulted in an increase in the amount of reverse repos classified as 'Loans and advances to customers' and 'Loans and advances to banks', and a decline in the amount classified as 'Trading assets' at 31 December 2013, compared with previous year-ends. Similarly, at 31 December 2013 there was an increase in the amount of repos classified as 'Customer accounts' and 'Deposits by banks' with a decline in the amount classified as 'Trading liabilities', compared with previous year-ends.
Funding sources and uses
Sources
Uses
Customer accounts ..................
1,482,812
1,340,014
Loans and advances to customers .............................................
1,080,304
997,623
- repos ....................................
121,515
28,618
- reverse repos ........................
88,215
34,651
- cash deposits ........................
1,361,297
1,311,396
- stock borrowing ...................
65
13
- loans and other receivables ...
992,024
962,959
Deposits by banks ...................
129,212
107,429
Loans and advances to banks ...
211,521
152,546
42,705
11,949
91,475
35,461
86,507
95,480
120,046
117,085
Debt securities issued ...............
104,080
119,461
Assets held for sale ..................
4,050
19,269
Liabilities of disposal groups
Trading assets .........................
303,192
408,811
held for sale ..........................
2,804
5,018
10,120
118,681
Subordinated liabilities .............
28,976
29,479
10,318
16,071
Financial liabilities designated
- settlement accounts .............
19,435
14,510
at fair value .........................
89,084
87,720
- other trading assets ..............
263,319
259,549
Liabilities under insurance
Financial investments .............
425,925
421,101
contracts ..............................
74,181
68,195
Cash and balances with
Trading liabilities ....................
207,025
304,563
central banks ........................
166,599
141,532
17,421
130,223
Net deployment in other
- stock lending ........................
12,218
6,818
balance sheet assets and
17,428
17,108
liabilities ...............................
117,042
104,126
- other trading liabilities .........
159,958
150,414
2,308,633
2,245,008
Total equity ............................
190,459
183,129
Cross-border, intra-Group and cross-currency liquidity and funding risk
The stand-alone operating entity approach to liquidity and funding mandated by the LFRF restricts the exposure of our operating entities to the risks that can arise from extensive reliance on cross-border funding. Operating entities manage their funding sources locally, focusing predominantly on the local customer deposit base. The RBWM, CMB and GPB customer relationships that give rise to core deposits within an operating entity generally reflect a local customer relationship with that operating entity. Access to public debt markets is co-ordinated globally by the Global Head of Balance Sheet Management and the Group Treasurer with Group ALCO monitoring all planned public debt issuance on a monthly basis. As a general principle, operating entities are only permitted to issue in their local currency and are encouraged to focus on local private placements. The public issuance of debt instruments in foreign currency is tightly controlled and generally restricted to HSBC Holdings and HSBC Bank.
A central principle of our stand-alone approach to LFRM is that operating entities place no future reliance on other Group entities. However, operating entities may, at their discretion, utilise their respective committed facilities from other Group entities if necessary. In addition, intra-Group large exposure limits are applied by national regulators to individual legal entities locally, which restricts the unsecured exposures of legal entities to the rest of the Group to a percentage of the lender's regulatory capital.
Our LFRF also considers the ability of each entity to continue to access foreign exchange markets under stress when a surplus in one currency is used to meet a deficit in another currency, for example, by using the foreign currency swap markets. Where appropriate, operating entities are required to monitor stressed coverage ratios and ACF ratios for non-local currencies and set limits for them. Foreign currency swap markets in currency pairs settled through the Continuous Link Settlement Bank are considered to be extremely deep and liquid and it is assumed that capacity to access these markets is not exposed to idiosyncratic risks.
For the majority of operating entities within the Group, the only material non-local currency (exceeding 10% of balance sheet liabilities) is the US dollar. The euro is in an additional material non-local currency for HSBC UK and offshore renminbi is material for The Hongkong and Shanghai Banking Corporation. Singapore dollars and Indian rupees are also material currencies for The Hongkong and Shanghai Banking Corporation, but these currencies are managed onshore within the local country branch operations on a stand-alone branch basis.
Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities
Due not
more than
1 month
Due over 1 month but not more than 3 months
Due over 3 months but not more than 6 months
Due over 6 months but not more than 9 months
Due over 9 months but not more than 1 year
Due over 1 year but not more than 2 years
Due over 2 years but not more than 5 years
Due over
5 years
Total
Debt securities issued ..........................
25,426
9,752
17,942
11,659
10,587
31,839
46,934
31,066
185,205
- unsecured CDs and CP .................
7,589
7,206
9,867
3,239
5,043
4,449
2,749
−
40,142
- unsecured senior MTNs ...............
6,284
5,448
4,221
3,062
21,428
33,091
21,433
95,038
- unsecured senior structured notes
987
1,423
1,952
1,689
1,718
3,712
6,036
5,021
22,538
- secured covered bonds .................
1,250
2,747
3,317
7,539
- secured ABCP .............................
10,383
- secured ABS ................................
1,052
675
1,260
764
1,861
2,311
7,997
- others .........................................
164
1,295
1,568
Subordinated liabilities ........................
28
1,171
144
6
1,460
3,374
41,801
47,984
- subordinated debt securities..........
460
34,899
40,082
- preferred securities ......................
1,000
6,902
7,902
9,780
19,113
11,803
10,593
33,299
50,308
72,867
233,189
19,280
20,724
22,479
10,269
14,934
27,716
56,543
25,970
197,915
3,736
12,176
6,707
1,632
1,709
3,502
763
30,225
201
5,360
12,655
6,772
10,411
15,318
41,381
17,299
109,397
487
1,112
1,694
1,075
897
2,584
5,779
6,208
19,836
1,133
422
758
3,578
4,557
826
11,274
14,583
1,891
16,474
175
211
339
633
1,677
2,072
525
5,736
169
10
79
29
526
1,057
1,991
4,973
7
44
1,296
2,550
43,949
47,856
- subordinated debt securities .........
1,550
36,005
38,912
7,944
8,944
19,287
20,768
14,944
29,012
59,093
69,919
245,771
Measured in terms of consolidated total liabilities excluding capital, only four currencies (US dollar, sterling, euro and Hong Kong dollar) represent more than 5% of total liabilities.
Wholesale term debt maturity profile
The maturity profile of our wholesale term debt obligations is set out above in the table headed 'Wholesale funding principal cash flows payable by HSBC under financial liabilities by remaining contractual maturities'.
The balances in the table do not agree directly with those in the consolidated balance sheet as the table presents gross cash flows relating to principal payments and not the balance sheet carrying value, which includes debt securities and subordinated liabilities measured at fair value.
The basis of preparation of this table has changed from that presented in the Annual Report and Accounts 2012, which included future coupon payments in addition to the principal amounts. The disclosure of principal amounts only is consistent with how we manage the associated liquidity and funding risk.
Encumbered and unencumbered assets
The table on page 225, 'Analysis of on-balance sheet encumbered and unencumbered assets', summarises the total on and off-balance sheet assets that are capable of supporting future funding andcollateral needs and shows the extent to which these assets are currently pledged for this purpose. The objective of this disclosure is to facilitate an understanding of available and unrestricted assets that are valued on a liquidity and funding risk basis and could be used to support potential future funding and collateral needs.
The disclosure is not designed to identify assets which would be available to meet the claims of creditors or to predict assets that would be available to creditors in the event of a resolution or bankruptcy.
An asset is defined as encumbered if it has been pledged as collateral against an existing liability, and as a result is no longer available to the Group to secure funding, satisfy collateral needs or be sold to reduce the funding requirement. An asset is therefore categorised as unencumbered if it has not been pledged against an existing liability. Unencumbered assets are further analysed into four separate sub-categories; 'readily realisable assets', 'other realisable assets', 'reverse repo/stock borrowing receivables and derivative assets' and 'cannot be pledged as collateral'.
At 31 December 2013, the Group held US$1,824bn of unencumbered assets that could be used to support potential future funding and collateral needs, representing 83% of the total assets that can support funding and collateral needs (on and off-balance sheet). Of this amount, US$754bn (US$723bn on-balance sheet) were assessed to be readily realisable.
Summary of assets available to support potential future funding and collateral needs (on and off-balance sheet)
Total on-balance sheet assets .................................................................................................
2,671
2,693
Less:
Reverse repo/stock borrowing receivables and derivative assets ..........................................
(481)
(562)
Other assets that cannot be pledged as collateral ................................................................
(257)
(247)
Total on-balance sheet assets that can support funding and collateral needs ...........................
1,933
1,884
Add off-balance sheet assets:
Fair value of collateral received from reverse repo/stock borrowing that is available to sell or repledge .........................................................................................................................
260
296
Fair value of collateral received from derivatives that is available to sell or repledge ..........
5
Total assets that can support funding and collateral needs (on and off-balance sheet) ............
2,198
2,186
On-balance sheet assets pledged ..........................................................................................
(187)
(233)
Off-balance sheet collateral received from reverse repo/stock borrowing which has beenrepledged or sold ............................................................................................................
(186)
(203)
Off-balance sheet collateral received from derivative transactions which has beenrepledged or sold ............................................................................................................
(1)
Assets available to support future funding and collateral needs ...............................................
1,824
1,749
The effect of active collateral management
Collateral is managed on an operating entity basis, consistent with the approach adopted in managing liquidity and funding. Available collateral held by each operating entity is managed as a single collateral pool. In deciding which collateral to pledge, each operating entity seeks to optimise the use of the available collateral pool within the confines of the LFRF, irrespective of whether the collateral pledged is recognised on-balance sheet or was received in respect of reverse repo, stock borrowing or derivative transactions.
Managing collateral in this manner affects the presentation of asset encumbrance in that we may encumber on-balance sheet holdings while maintaining available unencumbered off-balance sheet holdings, even though we are not seeking to directly finance the on-balance sheet holdings pledged.
In quantifying the level of encumbrance of negotiable securities, the encumbrance is analysed by individual security. When a particular security is encumbered and we hold the security both on-balance sheet and off-balance sheet with the right to repledge, we assume for the purpose of this disclosure that the off-balance sheet holding is encumbered ahead of the on-balance sheet holding.
An on-balance sheet encumbered and off-balance sheet unencumbered asset will occur, for example, if we receive a specific security as a result of a reverse repo/stock borrowing transaction, but finance the cash lent by pledging a generic collateral basket, even if the security received is eligible for the collateral basket pledged. It will also occur if we receive a generic collateral basket as a result of a reverse repo transaction but finance the cash lent by pledging specific securities, even if the securities pledged are eligible for the collateral basket.
Off-balance sheet collateral received and pledged for reverse repo and stock borrowing transactions
The fair value of assets accepted as collateral that we are permitted to sell or repledge in the absence of default was US$260bn at 31 December 2013 (2012: US$296bn). The fair value of any such collateral sold or repledged was US$186bn (2012: US$203bn). We are obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard reverse repo and stock borrowing transactions.
The fair value of collateral received and repledged in relation to reverse repos and stock borrowing is reported on a gross basis. The related balance sheet receivables and payables are reported on a net basis where required under IFRSs netting criteria.
As a consequence of reverse repo and stock borrowing transactions where the collateral received could be but had not been sold or re-pledged, we held US$74bn (2012: US$93bn) of unencumbered collateral available to support potential future funding and collateral needs at 31 December 2013.
Off-balance sheet non-cash collateral received and pledged for derivative transactions
The fair value of assets accepted as collateral related to derivative transactions that we are permitted to sell or repledge in the absence of default was US$5bn (2012: US$6bn). The fair value of any such collateral sold or repledged was US$1bn (2012: US$1bn). We are obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to derivative transactions.
Analysis of on-balance sheet encumbered and unencumbered assets
The table below presents an analysis of on-balance sheet holdings only, and shows the amounts of balance sheet assets on a liquidity and funding basis that are encumbered. The table therefore excludes any available off-balance sheet holdings received in respect of reverse repos, stock borrowing or derivatives.
Encumbered
Unencumbered
Assets pledged as collateral
Readily realisable assets
Other realisable assets
Reverse repos/stock borrowing receivables & derivative assets
Cannot
be pledged
as collateral
Cash and balances at central banks .......
161,240
269
5,090
Items in the course of collection fromother banks ......................................
6,021
Hong Kong Government certificates of indebtedness .....................................
25,220
Trading assets ......................................
99,326
142,211
14,654
20,438
26,563
- Treasury and other eligible bills ....
3,402
17,976
206
21,584
- debt securities ...............................
83,563
57,850
231
141,644
- equity securities ............................
8,373
55,156
363
63,892
- loans and advances to banks .........
1,796
2,813
6,151
5,263
11,861
27,884
- loans and advances to customers ..
2,192
8,416
7,934
15,175
14,471
48,188
Financial assets designated at fair value
19
2,706
1,883
33,822
38,430
50
776
10,968
12,589
1,874
1,103
22,734
25,711
4
66
76
Derivatives ..........................................
282,265
Loans and advances to banks ...............
162
8,342
80,231
31,311
Loans and advances to customers .........
32,218
102,203
854,724
86,346
4,813
Financial investments ..........................
54,473
289,093
31,096
51,263
2,985
72,849
2,052
78,112
51,488
210,516
25,720
50,949
338,673
5,728
3,324
9,140
Assets held for sale ..............................
Other assets .........................................
990
16,134
14,216
19,599
50,939
Current tax assets ................................
985
Prepayments and accrued income ........
11,006
Interest in associates and joint ventures .
12
16,356
272
16,640
Goodwill and intangible assets ..............
29,918
Property, plant and equipment ............
38
654
6,353
3,802
10,847
Deferred tax ........................................
7,456
187,226
722,595
1,023,832
480,524
257,141
2,671,318
Analysis of on-balance sheet encumbered and unencumbered assets (continued)
139,963
220
1,349
7,303
22,743
143,019
116,395
10,330
134,752
4,315
2,309
23,973
26,282
97,157
47,311
205
144,677
5,592
35,420
622
41,634
20,588
1,909
2,582
50,376
2,816
78,271
17,373
7,782
6,921
84,376
1,495
117,947
447
610
32,525
33,582
14
40
54
431
11,992
12,551
2
482
20,384
20,868
55
357,450
1,191
4,722
81,802
29,370
40,792
85,626
827,903
34,664
8,638
46,678
300,255
7,990
66,178
2,024
84,991
156
379
87,550
44,654
214,545
4,112
64,451
327,762
719
3,722
1,348
5,789
1,600
18,601
11,621
22,894
54,716
515
9,502
17,480
354
17,834
29,853
3,816
10,588
7,570
233,280
666,009
983,997
562,327
246,925
2,692,538
The US$32bn (2012: US$41bn) of loans and advances to customers reported in the table above as encumbered have been pledged predominantly to support the issuance of secured debt instruments such as covered bonds and ABSs, including asset-backed commercial paper issued by consolidated multi-seller conduits. It also includes those pledged in relation to any other form of secured borrowing.
In total, the Group pledged US$150bn (2012: US$152bn) of negotiable securities, predominantly as a result of market-making in securities financing to our clients.
Additional contractual obligations
Under the terms of our current collateral obligations under derivative contracts (which are ISDA compliant CSA contracts and contracts entered for pension obligations, and exclude the contracts entered for SPVs and ATEs) and based on the positions at 31 December 2013, we estimate that we could be required to post additional collateral of up to US$0.7bn (2012: US$1.5bn) in the event of a one-notch downgrade in credit ratings, which would increase to US$1.2bn (2012: US$2.5bn) in the event of a two-notch downgrade.
Definitions of the categories included in the table 'Analysis of on-balance sheet encumbered and unencumbered assets':
· Encumbered assets are assets on our balance sheet which have been pledged as collateral against an existing liability, and as a result are assets which are unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
· Unencumbered - readily realisable assets are assets regarded by the bank to be readily realisable in the normal course of business to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, and are not subject to any restrictions on their use for these purposes.
· Unencumbered - other realisable assets are assets where there are no restrictions on their use to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, but they are not readily realisable in the normal course of business in their current form.
· Unencumbered - reverse repo/stock borrow receivables and derivative assets are assets related specifically to reverse repo, stock borrowing and derivative transactions. They are shown separately as these on-balance sheet assets cannot be pledged but often give rise to the receipt of non-cash assets which are not recognised on the balance sheet, and can additionally be used to raise secured funding, meet additional collateral requirements or be sold.
· Unencumbered - cannot be pledged as collateral are assets that have not been pledged and which we have assessed could not be pledged and therefore could not be used to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements. An example is assets held by the Group's insurance subsidiaries that back liabilities to policyholders and support the solvency of these entities.
Historically, the Group has not recognised any contingent liquidity value for assets other than those assets defined under the LFRF as being liquid assets, and any other negotiable instruments that under stress are assumed to be realisable after three months, even though they may currently be realisable. This approach has generally been driven by our risk appetite not to place any reliance on central banks. In a few cases, we have recognised the contingent value of discrete pools of assets, but the amounts involved are insignificant. As a result, we have reported the majority of our loans and advances to customers and banks in the category 'Other realisable assets' as management would need to perform additional actions in order to make the assets transferable and readily realisable.
Additional information
The amount of assets pledged to secure liabilities reported in Note 36 on the Financial Statements may be greater than the book value of assets reported as being encumbered in the table on page 225. Examples of where such differences occur are:
· ABSs and covered bonds, where the amount of liabilities issued plus the required mandatory over-collateralisation is lower than the book value of assets pledged to the pool. Any difference is categorised in the table above as 'Unencumbered - readily realisable assets';
· negotiable securities held by custodians or settlement agents, where a floating charge has been given over the entire holding to secure intra-day settlement liabilities, are only reported as encumbered to the extent that we have a liability to the custodian or settlement agent at the reporting date, with the balance reported as 'Unencumbered - readily realisable assets'; and
· assets pre-positioned with central banks or government agencies are only reported as encumbered to the extent that we have secured funding with the collateral. The unutilised pre‑positioned collateral is reported as 'Unencumbered - readily realisable assets'.
Contractual maturity of financial liabilities
The balances in the table below do not agree directly with those in our consolidated balance sheet as the table incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading liabilities and derivatives not treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the 'On demand' time bucket and not by contractual maturity.
A maturity analysis of repos and debt securities in issue included in trading liabilities is presented in Note 33 on the Financial Statements.
In addition, loan and other credit-related commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest date they can be called.
Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
On
demand US$m
Due within 3 months US$m
Due between 3 and 12 months
Due between
1 and 5 years
Due after 5 years
Deposits by banks ..............................................
65,839
54,175
5,612
2,819
686
Customer accounts .............................................
1,124,635
277,459
69,542
15,520
726
Trading liabilities ...............................................
Financial liabilities designated at fair value .........
18,689
1,967
3,223
39,554
64,144
Derivatives ........................................................
269,554
456
1,684
6,099
1,638
Debt securities in issue .......................................
2,528
35,401
33,695
46,141
6,526
Subordinated liabilities ........................................
391
2,687
11,871
44,969
Liabilities of disposal groups held for sale ...........
1,011
241
Other financial liabilities ....................................
30,985
30,465
6,335
2,310
1,720,321
400,555
123,007
124,380
119,989
Loan and other credit-related commitments ......
377,352
79,599
55,124
59,747
16,872
Financial guarantees and similar contracts ..........
18,039
4,796
12,040
7,479
3,988
2,115,712
484,950
190,171
191,606
140,849
45,290
51,321
4,495
11,718
789
1,035,636
229,642
62,650
17,508
720
304,564
7,778
1,211
7,825
42,683
62,279
351,367
355
995
4,785
1,855
64
37,938
37,167
45,433
6,034
386
1,149
9,058
46,322
1,416
993
707
24
26,963
31,557
5,381
3,467
829
1,773,085
353,403
120,369
134,853
118,852
375,818
76,394
51,330
57,506
18,421
14,321
5,506
12,104
9,266
3,796
2,163,224
435,303
183,803
201,625
141,069
HSBC Holdings
Liquidity Risk in HSBC Holdings is overseen by the HSBC Holdings Asset and Liability Committee ('HALCO'). Liquidity Risk arises because of HSBC Holdings' obligation to make payments to debt holders as they fall due. The liquidity risk related to these cashflows is managed by matching debt obligations with internal loan cashflows and by maintaining an appropriate liquidity buffer that is monitored by HALCO. During 2013, HSBC Holdings issued US$2bn (2012: nil) of debt securities that qualify as capital in the UK but did not issue any senior debt (2012: US$2bn).
The balances in the table below do not agree directly with those on the balance sheet of HSBC Holdings as the table incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Derivatives not treated as hedging derivatives are included in the 'On demand' time bucket.
In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest date on which they can be called.
Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
On demand
Due within 3 months
3 and 12 months
Amounts owed to HSBC undertakings ..............
2,053
1,759
2,315
857
5,654
Financial liabilities designated at fair value ......
299
671
4,921
26,518
Derivatives .....................................................
704
Debt securities in issue .....................................
37
1,780
1,451
Subordinated liabilities .....................................
676
5,699
24,812
Other financial liabilities .................................
885
284
2,757
3,205
5,726
11,756
58,435
Loan commitments .........................................
1,245
Financial guarantees and similar contracts .......
52,836
56,838
3,032
604
1,096
1,918
807
5,345
31,970
760
36
1,946
1,487
614
3,273
25,049
394
3,792
1,508
2,835
12,482
66,076
1,200
49,402
54,394
Annual Financial Report - 33 of 60
16:47:13
25 Mar 2014
Results
1589D
