HSBC 2012 Annual Report Download - page 226

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Market risk > Sensitivity of NII / DBS Scheme / Parent company
224
The interest rate sensitivities set out above
are illustrative only and are based on simplified
scenarios. The limitations of this analysis are
discussed in the Appendix to Risk on page 269.
The year-on-year change in the sensitivity of
the Group’s net interest income to the change in rates
shown in the table above is largely driven by lower
implied yield curves, reducing the capacity to shock
interest rates down. Net interest income and its
associated sensitivity as reflected in the table above
include the expense of internally funding trading
assets, while related revenue is reported in ‘Net
trading income’.
We monitor the sensitivity of reported reserves
to interest rate movements on a monthly basis by
assessing the expected reduction in valuation of
available-for-sale portfolios and cash flow hedges
due to parallel movements of plus or minus 100bps
in all yield curves. The table below describes the
sensitivity of our reported reserves to these
movements and the maximum and minimum
month-end figures during the year:
Sensitivity of reported reserves to interest rate movements
(Unaudited)
US$m
Maximum
impact
US$m
Minimum
impact
US$m
At 31 December 2012
+ 100 basis point parallel move in all yield curves .................................................... (5,602) (5,748) (5,166)
As a percentage of total shareholders’ equity ............................................................ (3.2%) (3.3%) (2.9%)
– 100 basis point parallel move in all yield curves .................................................... 4,996 5,418 4,734
As a percentage of total shareholders’ equity ............................................................ 2.9% 3.1% 2.7%
At 31 December 2011
+ 100 basis point parallel move in all yield curves .................................................... (5,594) (6,178) (5,594)
As a percentage of total shareholders’ equity ............................................................ (3.5%) (3.9%) (3.5%)
– 100 basis point parallel move in all yield curves .................................................... 5,397 6,411 5,397
As a percentage of total shareholders’ equity ............................................................ 3.4% 4.0% 3.4%
The sensitivities above are illustrative only and
are based on simplified scenarios. The table shows
the potential sensitivity of reported reserves to
valuation changes in available-for-sale portfolios and
from cash flow hedges following the specified shifts
in yield curves. These particular exposures form only
a part of our overall interest rate exposures. The
accounting treatment of our remaining interest rate
exposures, while economically largely offsetting the
exposures shown in the above table, does not require
revaluation movements to go to reserves.
Defined benefit pension schemes
(Audited)
Market risk arises within our defined benefit pension
schemes to the extent that the obligations of the
schemes are not fully matched by assets with
determinable cash flows.
HSBC’s defined benefit pension schemes
(Audited)
2012 2011
US$bn US$bn
Liabilities (present value) ........ 38.1 35.0
% %
Assets:
Equities .................................... 18 15
Debt securities ......................... 71 73
Other (including property) ....... 11 12
100 100
For details of our defined benefit schemes, see
Note 7 on the Financial Statements, and for pension
risk management, see page 269.
Additional market risk measures applicable
only to the parent company
(Audited)
The principal tools used in the management of
market risk are VAR for foreign exchange rate risk,
and the projected sensitivity of HSBC Holdings’ net
interest income to future changes in yield curves and
interest rate gap re-pricing tables for interest rate risk.