HSBC 2015 Annual Report Download - page 489

HSBC HOLDINGS PLC
487
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Term Definition
Invested capital Equity capital invested in HSBC by its shareholders, adjusted for certain reserves and goodwill previously amortised
or written off.
Investment grade Represents a risk profile similar to a rating of BBB- or better, as defined by an external rating agency.
IRB advanced approach
(‘AIRB’)
A method of calculating credit risk capital requirements using internal PD, LGD and EAD models.
IRB foundation approach
(‘FIRB’)
A method of calculating credit risk capital requirements using internal PD models but with supervisory estimates of
LGD and conversion factors for the calculation of EAD.
ISDA Master agreement Standardised contract developed by ISDA used as an umbrella contract under which bilateral derivatives contracts
are entered into.
K
Key management personnel Directors and Group Managing Directors of HSBC Holdings.
L
Legacy credit in GB&M A separately identifiable, discretely managed business comprising Solitaire Funding Limited, the securities
investment conduits, the asset-backed securities trading portfolios and credit correlation portfolios, derivative
transactions entered into directly with monoline insurers, and certain other structured credit transactions.
Legal proceedings Civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or
counterclaim) or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings.
Legal risk The risk of financial loss, sanction and/or reputational damage resulting from contractual risk (the risk that the rights
and/or obligations of a Group member within a contractual relationship are defective); dispute risk (the risk due
to an adverse dispute environment or the management of potential or actual disputes); legislative risk (the risk
that a Group member fails to adhere to laws of the jurisdiction in which it operates); and non-contractual rights
risk (the risk that a Group member’s assets are not properly owned or are infringed by others or the infringement
by a Group member of another party’s rights).
Level 1
–
quoted market price Financial instruments with quoted prices for identical instruments in active markets.
Level 2
–
valuation technique
using observable inputs
Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or
similar instruments in inactive markets and financial instruments valued using models where all significant
inputs are observable.
Level 3
–
valuation technique with
significant unobservable inputs
Financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Leveraged finance Funding provided for entities with higher than average indebtedness, which typically arises from sub-investment
grade acquisitions or event-driven financing.
Leverage ratio A measure which is the ratio of tier 1 capital to total exposures. Total exposures include on-balance sheet items, off-
balance sheet items and derivatives, and should generally follow the accounting measure of exposure. This
supplementary measure to the risk-based capital requirements is intended to constrain the build-up of excess
leverage in the banking sector.
Liquidity coverage ratio
(‘LCR’)
The ratio of the stock of high quality liquid assets to expected net cash outflows over the following 30 days. High
quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central
bank eligible.
Liquidity enhancement Liquidity enhancement makes funds available if required for reasons other than asset default, e.g. to ensure timely
repayment of maturing commercial paper.
Liquidity risk The risk that HSBC does not have sufficient financial resources to meet its obligations as they fall due, or will have to
do so at an excessive cost. This risk arises from mismatches in the timing of cash flows.
Loan modification An account management action that results in a change to the original terms and conditions of a loan either
temporarily or permanently without resetting its delinquency status, except in case of a ‘modification re-age’
where delinquency status is also reset to up-to-date. Account modifications may include revisions to one or more
terms of the loan including, but not limited to, a change in interest rate, extension of the amortisation period,
reduction in payment amount and partial forgiveness or deferment of principal.
Loan re-age An account management action that results in the resetting of the contractual delinquency status of an account to
up-to-date upon fulfilment of certain requirements which indicate that payments are expected to be made in
accordance with the contractual terms.
Loans past due Loans on which repayments are overdue.
Loan-to-value ratio (‘LTV’) A mathematical calculation that expresses the amount of the loan as a percentage of the value of security. A high
LTV indicates that there is less cushion to protect the lender against house price falls or increases in the loan if
repayments are not made and interest is added to the outstanding loan balance.
Loss given default (‘LGD’) The estimated ratio (percentage) of the loss on an exposure to the amount outstanding at default (EAD) upon default
of a counterparty.
Loss severity The realised amount of losses incurred (including ancillary amounts owed) when a loan is foreclosed or disposed of
through the arrangement with the borrower. The loss severity is represented as a percentage of the outstanding
loan balance.
M
Malus An arrangement that permits an organisation to prevent vesting of all or part of the amount of a deferred
remuneration award in relation to risk outcomes or performance.