HSBC 2009 Annual Report Download - page 248

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Liquidity and funding > Liquidity risk management / Contingent liquidity risk
246
Advances to deposits ratio
HSBC emphasises the importance of core current
accounts and savings accounts as a source of funds
to finance lending to customers, and discourages
reliance on short-term professional funding. This is
achieved by placing limits on Group banking entities
which restrict their ability to increase loans and
advances to customers without corresponding
growth in current accounts and savings accounts.
This measure is referred to as the ‘advances to
deposits’ ratio.
Advances to deposits ratio limits are set by the
RMM and monitored by Group Finance. The ratio
describes loans and advances to customers as a
percentage of the total of core customer current and
savings accounts and term funding with a remaining
term to maturity in excess of one year. Loans and
advances to customers which are part of reverse
repurchase arrangements, and where HSBC receives
securities which are deemed to be liquid, are
excluded from the advances to deposits ratio. The
classification of a deposit as ‘core’ includes
consideration of the size of the customer’s total
deposit balances, the pricing and the deposit’s
behavioural characteristics.
The three principal banking entities listed in the
table below represented 70 per cent of HSBC’s total
core deposits at 31 December 2009 (2008: 70 per
cent). The table shows that loans and advances to
customers in HSBC’s principal banking entities are
overwhelmingly financed by reliable and stable
sources of funding. HSBC would meet any
unexpected net cash outflows by selling securities
and accessing additional funding sources such as
interbank or collateralised lending markets. The
distinction between core and non-core deposits
generally means that the Group’s measure of
advances to deposits is more restrictive than that
which could be inferred from the published financial
statements. For example, HSBC’s consolidated
advances to deposits measure at 31 December 2009
based only on published balance sheet information
was 77.3 per cent (2008: 83.6 per cent).
Ratio of net liquid assets to customer
liabilities
Net liquid assets are the aggregated liquid assets
less all funds maturing in the next 30 days from
wholesale market sources and from customers who
are deemed to be professional. For this purpose,
HSBC defines liquid assets as cash balances, short-
term interbank deposits and highly-rated debt
securities available for immediate sale and for which
a deep and liquid market exists. Contingent liquidity
risk associated with committed loan facilities is not
reflected in the ratios. The Group’s framework for
monitoring this risk is described in ‘Contingent
liquidity risk’ below.
Limits for the ratio of net liquid assets to
customer liabilities are set for each bank operating
entity, but not for HSBC Finance. As HSBC Finance
does not accept customer deposits, it is not
appropriate to manage its liquidity using standard
liquidity ratios. See ‘HSBC Finance’ below.
Ratios of net liquid assets to customer liabilities
are provided in the following table, along with the
US dollar equivalents of net liquid assets.
HSBC’s principal banking entities – the management of liquidity risk
(Audited)
Advances to deposits ratios
Ratio of net liquid assets
to customer liabilities Net liquid assets
2009 2008 2009 2008 2009 2008
% % % % US$bn US$bn
HSBC Bank (UK operations)
Year-end ............................ 102.3 106.0 8.8 7.1 29.2 21.3
Maximum ......................... 107.7 106.7 13.6 14.1 46.2 52.5
Minimum .......................... 101.7 97.5 6.5 6.9 19.5 21.3
Average ............................. 105.1 101.5 10.2 10.0 32.6 35.8
The Hongkong and Shanghai
Banking Corporation
Year-end ............................ 70.9 77.4 30.0 25.0 84.9 64.6
Maximum ......................... 77.4 82.9 35.0 25.0 97.8 64.6
Minimum .......................... 68.6 76.7 25.0 19.9 64.6 51.1
Average ............................. 71.5 80.6 30.7 21.9 85.1 56.5
HSBC Bank USA
Year-end ............................ 98.1 103.7 17.8 31.5 14.1 27.4
Maximum ......................... 110.6 117.3 31.5 31.5 27.4 27.4
Minimum .......................... 98.1
103.7 16.7 15.8 13.2 17.1
Average ............................. 105.4 111.8 22.2 22.6 18.9 21.5