HSBC 2004 Annual Report Download - page 168

HSBC HOLDINGS PLC
Financial Review (continued)
166
Liquidity and funding management
HSBC maintains a diversified and stable funding
base of core retail and corporate customer deposits
as well as portfolios of highly liquid assets. The
objective of HSBC’ s liquidity and funding
management is to ensure that all foreseeable funding
commitments and deposit withdrawals can be met
when due.
The management of liquidity and funding is
primarily carried out locally in the operating
companies of HSBC in accordance with practice and
limits set by the Group Management Board. These
limits vary by local financial unit to take account of
the depth and liquidity of the market in which the
entity operates. It is HSBC’s general policy that each
banking entity should be self-sufficient with regard
to funding its own operations. Exceptions are
permitted to facilitate the efficient funding of certain
short-term treasury requirements and start-up
operations or branches which do not have access to
local deposit markets, all of which are funded under
strict internal and regulatory guidelines and limits
from HSBC’s largest banking operations. These
internal and regulatory limits and guidelines serve to
place formal limitations on the transfer of resources
between HSBC entities and are necessary to reflect
the broad range of currencies, markets and time
zones within which HSBC operates.
HSBC requires operating entities to maintain a
strong liquidity position and to manage the liquidity
profile of their assets, liabilities and commitments so
that cash flows are appropriately balanced and all
funding obligations are met when due.
The Group’ s liquidity and funding management
process includes:
• projecting cash flows by major currency and
considering the level of liquid assets necessary
in relation thereto;
• monitoring balance sheet liquidity ratios against
internal and regulatory requirements;
• maintaining a diverse range of funding sources
with adequate back-up facilities;
• managing the concentration and profile of debt
maturities;
• maintaining debt financing plans;
• monitoring depositor concentration in order to
avoid undue reliance on large individual
depositors and ensure a satisfactory overall
funding mix; and
• maintaining liquidity and funding contingency
plans. These plans identify early indicators of
stress conditions and describe actions to be
taken in the event of difficulties arising from
systemic or other crises while minimising
adverse long-term implications for the business.
Primary sources of funding
Current accounts and savings deposits payable on
demand or at short notice form a significant part of
HSBC’ s funding. HSBC places considerable
importance on the stability of these deposits.
Stability depends upon maintaining depositor
confidence in HSBC’ s capital strength and liquidity,
and on competitive and transparent deposit-pricing
strategies. HSBC actively supports this confidence
by consistently reinforcing HSBC’ s brand values of
trust and solidity across the Group’ s geographically
diverse retail banking network.
HSBC accesses professional markets in order to
provide funding for non-banking subsidiaries that do
not accept deposits, to maintain a presence in local
money markets and to optimise the funding of asset
maturities not naturally matched by core deposit
funding. In aggregate, HSBC’ s banking entities are
liquidity providers to the inter-bank market, placing
significantly more funds with other banks than they
borrow.
The main operating subsidiary that does not
accept deposits is HSBC Finance Corporation, which
funds itself principally through taking term funding
in the professional markets and through the
securitisation of assets. At 31 December 2004,
US$112 billion of HSBC Finance Corporation’s
liabilities were drawn from professional markets,
utilising a range of products, maturities and
currencies to avoid undue reliance on any particular
funding source. Since becoming a member of the
HSBC Group, HSBC Finance Corporation’s access
to funding has improved in respect of both the
breadth of available sources and the pricing thereof.
Of total liabilities of US$1,277 billion at
31 December 2004, funding from customers
amounted to US$694 billion, of which
US$671 billion was contractually repayable within
one year. However, although the contractual
repayments of many customer accounts are on
demand or at short notice, in practice short-term
deposit balances remain stable as inflows and
outflows broadly match.
Other liabilities, including deposits by banks
and securities in issue, are set forth in the table on
page 167.
Assets available to meet these liabilities, and to
cover outstanding commitments to lend