HSBC 2005 Annual Report Download - page 184

HSBC HOLDINGS PLC
Other Information (continued)
182
Short-term borrowings
HSBC includes short-term borrowings within customer accounts, deposits by banks and debt securities in issue and
does not show short-term borrowings separately on the balance sheet. Short-term borrowings are defined by the US
Securities and Exchange Commission (‘SEC’) as Federal funds purchased and securities sold under agreements to
repurchase, commercial paper and other short-term borrowings. HSBC’s only significant short-term borrowings are
securities sold under agreements to repurchase and certain debt securities in issue. Additional information on these is
provided in the tables below.
Year ended 31 December
2005 2004 2003
US$m US$m US$m
Securities sold under agreements to repurchase
Outstanding at 31 December ........................................................................ 75,745 43,726 27,427
Average amount outstanding during the year ............................................... 74,143 46,229 25,883
Maximum quarter-end balance outstanding during the year ......................... 78,590 53,188 30,938
Weighted average interest rate during the year ............................................. 3.6% 2.7% 2.0%
Weighted average interest rate at the year-end ............................................. 4.0% 2.9% 1.9%
Short term bonds
Outstanding at 31 December ........................................................................ 40,642 36,085 29,979
Average amount outstanding during the year ............................................... 31,908 29,238 17,445
Maximum quarter-end balance outstanding during the year ......................... 40,642 36,085 29,979
Weighted average interest rate during the year ............................................. 4.6% 2.8% 2.5%
Weighted average interest rate at the year-end ............................................. 3.7% 2.5% 2.5%
Off-balance sheet arrangements
HSBC enters into certain off-balance sheet arrangements with customers in the ordinary course of business, as
described below.
(i) Financial guarantees, letters of credit and similar undertakings
Note 40 on the Financial Statements on page 327 describes various types of guarantees and discloses the
maximum potential future payments under such arrangements. Credit risk associated with all forms of guarantees
is assessed in the same manner as for on-balance sheet credit advances and, where necessary, provisions for
assessed impairment are included in ‘Other provisions’.
(ii) Commitments to lend
Undrawn credit lines are disclosed in Note 40 on the Financial Statements on page 327. The majority by value of
undrawn credit lines arise from ‘open to buy’ lines on personal credit cards, cheques issued to potential
customers offering them a pre-approved loan, advised overdraft limits, and mortgage offers awaiting customer
acceptance. HSBC generally has the right to change or terminate any conditions of a personal customer’s
overdraft, credit card or other credit line upon notification to the customer. In respect of corporate commitments
to lend, in most contracts HSBC’s position will be protected through restrictions on access to funding in the
event of material adverse change.
(iii) Credit derivatives
HSBC uses credit derivatives through its principal dealing operations, acting as a principal counterparty to a
broad range of users, structuring deals to produce risk management products for its customers, or making
markets in certain products. Risk is typically controlled through entering into offsetting credit derivative
contracts with other counterparties.
HSBC manages the credit risk arising on buying and selling credit derivative protection by including the
exposure to any credit risk that arises from such transactions within its overall credit limits structure to the
relevant counterparty. The trading of credit derivatives is restricted to a small number of offices within the major
centres which in management’s view have the control infrastructure and market skills to manage effectively the
credit risk inherent in the products.