HSBC 2009 Annual Report Download - page 495

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Term Definition
Probability of default (‘PD’) The probability that an obligor will default within a one-year time horizon.
Regulatory capital The capital which HSBC holds, determined in accordance with rules established by
the FSA for the consolidated Group and by local regulators for individual Group
companies.
Renegotiated loans Loans whose terms have been renegotiated and are treated as up to date loans for
measurement purposes once the minimum number of payments required under the
new arrangements have been received.
Restricted Shares Awards of HSBC Holdings ordinary shares to which employees will normally
become entitled, generally between one and three years, subject to remaining an
employee.
Retail loans Money loaned to individuals rather than institutions. This includes both secured an
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unsecured loans such as mortgages and credit card balances.
Return on equity Profit attributable to ordinary shareholders divided by average invested capital.
Risk appetite An assessment of the types and quantum of risks to which HSBC wishes to be
exposed.
Risk-weighted assets
(‘RWA’s)
Calculated by assigning a degree of risk expressed as a percentage (risk weight) to
an exposure in accordance with the applicable Standardised or IRB approach
rules.
Seasoning The emergence of credit loss patterns in portfolios over time.
Second lien A security interest granted over an item of property to secure the repayment of a deb
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that is issued against the same collateral as a first lien but that is subordinate to it.
In the case of default, repayment for this debt will only be received after the first
lien has been repaid.
Securitisation A transaction or scheme whereby the credit risk associated with an exposure, or pool
of exposures, is tranched and where payments to investors in the transaction or
scheme are dependent upon the performance of the exposure or pool of exposures.
A traditional securitisation involves the transfer of the exposures being securitise
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to an SPE which issues securities. In a synthetic securitisation, the tranching is
achieved by the use of credit derivatives and the exposures are not removed from
the balance sheet of the originator.
Single-issuer liquidity facility A liquidity or stand-by line provided to a corporate customer which is different fro
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a similar line provided to a conduit funding vehicle.
Structured Investment Vehicles
(‘SIV’s)
Special purpose entities which invest in diversified portfolios of interest-earning
assets, generally funded through issues of commercial paper, medium-term notes
and other senior debt to take advantage of the spread differentials between the
assets in the SIV and the funding cost.
Special purpose entities
(‘SPE’s)
A corporation, trust or other non-bank entity, established for a narrowly defined
purpose, including for carrying on securitisation activities. The structure of the
entity and activities are intended to isolate the obligations of the SPE from those o
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the originator and the holders of the beneficial interests in the securitisation.
Standardised approach In relation to credit risk, a method for calculating credit risk capital requirements
using External Credit Assessment Institutions (‘ECAI’) ratings and supervisory
risk weights. In relation to operational risk, a method of calculating the
operational capital requirement by the application of a supervisory defined
percentage charge to the gross income of eight specified business lines.
Structured finance / notes An instrument whose return is linked to the level of a specified index or the level o
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a specified asset. The return on a structured note can be linked to equities, interes
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rates, foreign exchange, commodities or credit. Structured notes may or may not
offer full or partial capital protection in the event of a decline in the underlying
index or asset.