HSBC 2015 Annual Report Download - page 444

Notes on the Financial Statements (continued)
38 – Lease commitments / 39 – Structured entities
HSBC HOLDINGS PLC
442
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (‘FSCS’) has provided compensation to consumers following the collapse of
a number of deposit takers. The compensation paid out to consumers is currently funded through loans from HM Treasury
which at 31 December 2015 stood at approximately £16bn ($23.7bn).
The Group could be liable to pay a proportion of the outstanding amount that the FSCS has borrowed from HM Treasury. The
ultimate FSCS levy to the industry as a result of the collapses cannot currently be estimated reliably as it is dependent on
various uncertain factors including the potential recoveries of assets by the FSCS and changes in the level of protected deposits
and the population of FSCS members at the time.
Capital commitments
In addition to the commitments disclosed on page 441, at 31 December 2015 HSBC had $468m (2014: $656m) of capital
commitments contracted but not provided for and $100m (2014: $101m) of capital commitments authorised but not
contracted for.
Associates
HSBC’s share of associates’ contingent liabilities amounted to $39,222m at 31 December 2015 (2014: $47,593m). No matters
arose where HSBC was severally liable.
38 Lease commitments
Accounting policy
Agreements which transfer substantially all the risks and rewards incidental to the ownership of assets are classified as finance leases.
As a lessor under finance leases, HSBC presents the amounts due under the leases after deduction of unearned charges in ‘Loans and
advances to banks’ or ‘Loans and advances to customers’. As a lessee under finance leases, HSBC presents the leased assets in ‘Property,
plant and equipment’ with the corresponding liability included in ‘Other liabilities’. A finance lease asset and its corresponding liability are
recognised initially at the fair value of the asset or, if lower, the present value of the minimum lease payments.
All other leases are classified as operating leases. As lessor, HSBC presents assets subject to operating leases in ‘Property, plant and
equipment’. Impairment losses are recognised to the extent that carrying values are not fully recoverable. As a lessee, leased assets are not
recognised on the balance sheet.
Finance income or charges on finance leases are recognised in ‘Net interest income’ over the lease periods so as to give a constant rate of
return. Rentals payable or receivable under operating leases are spread on a straight-line basis over the lease periods and are recognised in
‘General and administrative expenses’ or in ‘Other operating income’.
Operating lease commitments
At 31 December 2015, future minimum lease payments under non-cancellable operating leases for land, buildings and
equipment were $5,333m (2014: $5,372m).
Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and
general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals
are calculated to recover the cost of assets less their residual value, and earn finance income.
2015 2014
Total future
minimum
payments
Unearned
finance
income
Present
value
Total future
minimum
payments
Unearned
finance
income
Present
value
$m $m $m $m $m $m
Lease receivables:
–
no later than one year 3,382 (332) 3,050 3,383 (374) 3,009
– later than one year and no later than
five years
7,219 (837) 6,382 8,089 (980) 7,109
–
later than five years 4,897 (702) 4,195 5,013 (744) 4,269
At 31 December 15,498 (1,871) 13,627 16,485 (2,098) 14,387
39 Structured entities
Accounting policy
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls
the entity, for example when any voting rights relate to administrative tasks only, and key activities are directed by contractual
arrangements. Structured entities often have restricted activities and a narrow and well defined objective.
Structured entities are assessed for consolidation in accordance with the accounting policy set out in Note 1.
HSBC is mainly involved with structured entities through the securitisation of financial assets, conduits and investment funds.