HSBC 2015 Annual Report Download - page 176

Report of the Directors: Risk (continued)
Market risk
HSBC HOLDINGS PLC
174
Defined benefit pension schemes
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.
For details of our defined benefit schemes, including asset
allocation, see Note 6 on the Financial Statements, and for pension
risk management see page 189.
Additional market risk measures applicable
only to the parent company
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 repricing
tables for interest rate risk.
Foreign exchange risk
Total foreign exchange VaR arising within HSBC Holdings
in 2015 was as follows:
HSBC Holdings – foreign exchange VaR
2015
$m
2014
$m
At 31 December 45.6 29.3
Average 42.3 42.1
Minimum 32.9 29.3
Maximum 47.1 50.0
The foreign exchange risk largely arises from loans to
subsidiaries of a capital nature that are not denominated
in the functional currency of either the provider or the
recipient and which are accounted for as financial assets.
Changes in the carrying amount of these loans due to
foreign exchange rate differences are taken directly to
HSBC Holdings’ income statement. These loans, and
most of the associated foreign exchange exposures,
are eliminated on consolidation.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity over a five-year time
horizon reflecting the longer-term perspective on interest
rate risk management appropriate to a financial services
holding company. These sensitivities assume that any
issuance where HSBC Holdings has an option to reimburse at
a future call date is called at this date. The table below sets
out the effect on HSBC Holdings’ future NII over a five-year
time horizon of incremental 25 basis point parallel falls or
rises in all yield curves worldwide at the beginning of each
quarter during the 12 months from 1 January 2015.
Assuming no management actions, a sequence of such
rises would increase planned NII for the next five years by
$247m (2014: increase of $600m), while a sequence of
such falls would decrease planned NII by $266m (2014:
decrease of $539m).
Sensitivity of HSBC Holdings’ net interest income to interest rate movements34
US dollar
bloc
Sterling
bloc
Euro
bloc Total
$m $m $m $m
Change in projected net interest income as at 31 December arising from
a shift in yield curves
2015
of + 25 basis points at the beginning of each quarter
0-1 year 57 15
–
72
2-3 years 118 43 7 168
4-5 years (23) 43 (12) 8
of
–
25 basis points at the beginning of each quarter
0-1 year (57) (14) (6) (77)
2-3 years (118) (43) (22) (183)
4-5 years 23 (43) 15 (5)
2014
of + 25 basis points at the beginning of each quarter
0-1 year 78 9 2 89
2-3 years 281 17 34 332
4-5 years 138 17 24 179
of
–
25 basis points at the beginning of each quarter
0-1 year (58) (9) (1) (68)
2-3 years (276) (16) (12) (304)
4-5 years (138) (17) (12) (167)
For footnote, see page 191.
The interest rate sensitivities tabulated above are indicative
and based on simplified scenarios. The figures represent
hypothetical movements in NII based on our projected
yield curve scenarios, HSBC Holdings’ current interest rate
risk profile and assumed changes to that profile during the
next five years. Changes to assumptions concerning the
risk profile over the next five years can have a significant
impact on the NII sensitivity for that period. However, the
figures do not take into account the effect of actions that
could be taken to mitigate this interest rate risk.