HSBC 2015 Annual Report Download - page 162

Report of the Directors: Risk (continued)
Liquidity and funding
HSBC HOLDINGS PLC
160
from operating activities are presented as a net balancing
source or deployment of funds.
The level of customer accounts continued to exceed the
level of loans and advances to customers. The positive
funding gap was predominantly deployed in liquid assets
(cash and balances with central banks and financial
investments) as required by the LFRF.
Loans and other receivables due from banks continued to
exceed deposits taken from banks. The Group remained a
net unsecured lender to the banking sector.
For a summary of sources and utilisation of repos and stock
lending, see the Appendix to Risk on page 208.
Funding sources and uses28
2015 2014
$m $m
Sources
Customer accounts 1,289,586 1,350,642
Deposits by banks 54,371 77,426
Repurchase agreements
–
non-trading 80,400 107,432
Debt securities issued 88,949 95,947
Liabilities of disposal groups held for
sale 36,840 6,934
Subordinated liabilities 22,702 26,664
Financial liabilities designated
at fair value 66,408 76,153
Liabilities under insurance contracts 69,938 73,861
Trading liabilities 141,614 190,572
–
repos 442 3,798
–
stock lending 8,859 12,032
–
settlement accounts 10,530 17,454
–
other trading liabilities 121,783 157,288
Total equity 197,518 199,978
At 31 December 2,048,326 2,205,609
Uses
Loans and advances to customers 924,454 974,660
Loans and advances to banks 90,401 112,149
Repurchase agreements
–
non-trading 146,255 161,713
Assets held for sale 43,900 7,647
Trading assets 224,837 304,193
–
reverse repos 438 1,297
–
stock borrowing 7,118 7,969
–
settlement accounts 12,127 21,327
–
other trading assets 205,154 273,600
Financial investments 428,955 415,467
Cash and balances with central banks 98,934 129,957
Net deployment in other balance sheet
assets and liabilities 90,590 99,823
At 31 December 2,048,326 2,205,609
For footnote, see page 191.
Cross-border, intra-Group and cross-currency liquidity
and funding risk
The stand-alone operating entity approach to liquidity and
funding mandated by the LFRF restricts the exposure of our
operating entities to the risks that can arise from extensive
reliance on cross-border funding. Operating entities manage
their funding sources locally, focusing predominantly on the
local customer deposit base. The RBWM, CMB and GPB
customer relationships that give rise to core deposits within
an operating entity generally reflect a local customer
relationship with that operating entity. Access to public debt
markets is coordinated globally by the Global Head of Balance
Sheet Management and the Group Treasurer with Group
ALCO monitoring all planned public debt issuance on a
monthly basis. As a general principle, operating entities
are only permitted to issue in their local currency and are
encouraged to focus on local private placements. The public
issuance of debt instruments in foreign currency is tightly
controlled and generally restricted to HSBC Holdings plc and
HSBC Bank plc.
A central principle of our stand-alone approach to LFRF is that
operating entities place no future reliance on other Group
entities. However, operating entities may, at their discretion,
utilise their respective committed facilities from other Group
entities if necessary. In addition, intra-Group large exposure
limits are applied by national regulators to individual legal
entities locally, which restrict the unsecured exposures of
legal entities to the rest of the Group to a percentage of
the lender’s regulatory capital.
Our LFRF also considers the ability of each entity to continue
to access foreign exchange markets under stress when
a surplus in one currency is used to meet a deficit in another
currency, for example, by using the foreign currency swap
markets. Where appropriate, operating entities are required
to monitor stressed coverage ratios and ACF ratios for
non-local currencies and set limits for them. Foreign
currency swap markets in currency pairs settled through
the Continuous Link Settlement Bank are considered to be
extremely deep and liquid and it is assumed that capacity
to access these markets is not exposed to idiosyncratic risks.
The table below shows the ACF ratios by material currencies
for the year ended 31 December 2015.
Advances to core funding ratios by material currency23
At
31 December
2015
%
HSBC UK liquidity group19
Local currency (sterling) 98
US dollars 128
Euros 111
Consolidated 101
The Hongkong and Shanghai Banking Corporation20
Local currency (Hong Kong dollars) 76
US dollars 60
Consolidated 69
HSBC USA21
Local currency (US dollars) 89
Consolidated 89
Total of HSBC’s other principal entities24
Local currency 96
US dollars 89
Consolidated 91
For footnotes, see page 191.
For all HSBC’s operating entities, the only material currencies
(those that exceed 5% of Group balance sheet liabilities) are
the Hong Kong dollar, euro, sterling and US dollar.