HSBC 2008 Annual Report Download - page 201

199
Maximum exposure to credit risk
(Audited)
At 31 December 2008 At 31 December 2007
Maximum
exposure
Offset
Net
exposure to
credit risk
Maximum
exposure
Offset
Net
exposure to
credit risk
US$m US$m US$m US$m US$m US$m
Items in the course of collection from other banks 6,003 – 6,003 9,777 – 9,777
Trading assets ..................................................... 405,451 (13,227) 392,224 394,492 (12,220) 382,272
– treasury and other eligible bills ................... 32,458 – 32,458 16,439 – 16,439
– debt securities .............................................. 199,619 – 199,619 178,834 (1,417) 177,417
– loans and advances to banks ....................... 73,055 – 73,055 100,440 (994) 99,446
– loans and advances to customers ................ 100,319 (13,227) 87,092 98,779 (9,809) 88,970
Financial assets designated at fair value ............ 17,540 – 17,540 21,517 – 21,517
– treasury and other eligible bills ................... 235 – 235 181 – 181
– debt securities .............................................. 16,349 – 16,349 21,150 – 21,150
– loans and advances to banks ....................... 230 – 230 178 – 178
– loans and advances to customers ................ 726 – 726 8 – 8
Derivatives .......................................................... 494,876 (383,308) 111,568 187,854 (121,709) 66,145
Loans and advances held at amortised cost ........ 1,086,634 (83,398) 1,003,236 1,218,914 (66,983) 1,151,931
– loans and advances to banks ....................... 153,766 (126) 153,640 237,366 (278) 237,088
– loans and advances to customers ................ 932,868 (83,272) 849,596 981,548 (66,705) 914,843
Financial investments ......................................... 292,984 – 292,984 270,406 – 270,406
– treasury and other similar bills .................... 41,027 – 41,027 30,104 – 30,104
– debt securities .............................................. 251,957 – 251,957 240,302 – 240,302
Other assets ......................................................... 40,859 (5) 40,854 43,245 (226) 43,019
– endorsements and acceptances .................... 10,482 (5) 10,477 12,248 (226) 12,022
– accrued income and other ........................... 30,377 – 30,377 30,997 – 30,997
Financial guarantees ........................................... 52,318 – 52,318 56,440 – 56,440
Loan commitments and other credit-related
commitments1 ................................................. 604,022 – 604,022 764,457 – 764,457
3,000,687 (479,938) 2,520,749 2,967,102 (201,138) 2,765,964
1 The amount of the loan commitments reflects, where relevant, the expected level of take-up of pre-approved loan offers made by
mailshots to personal customers. In addition to those amounts, there is a further maximum possible exposure to credit risk of
US$35,849 million (2007: US$317,834 million), reflecting the full take-up of such irrevocable loan commitments.
Collateral and other credit enhancements
(Audited)
Collateral held against financial instruments
presented in the ‘Maximum exposure to credit risk’
table above is described in more detail below.
Items in the course of collection from other banks
Settlement risk arises in any situation where a
payment in cash, securities or equities is made in the
expectation of a corresponding receipt of cash,
securities or equities. Daily settlement limits are
established for counterparties to cover the aggregate
of HSBC’s transactions with each one on any
single day. Settlement risk on many transactions,
particularly those involving securities and equities,
is substantially mitigated by settling through assured
payment systems or on a delivery-versus-payment
basis.
Treasury, other eligible bills and debt securities
Collateral held as security for financial assets other
than loans and advances is determined by the nature
of the instrument. Debt securities, treasury and other
eligible bills are generally unsecured, except for
ABSs and similar instruments, which are secured by
pools of financial assets.
Derivatives
The ISDA Master Agreement is HSBC’s preferred
agreement for documenting derivatives activity. It
provides the contractual framework within which
dealing activity across a full range of over-the-
counter products is conducted, and contractually
binds both parties to apply close-out netting across
all outstanding transactions covered by an agreement
if either party defaults or other pre-agreed
termination events occur. It is common, and HSBC’s
preferred practice, for the parties to execute a Credit
Support Annex (‘CSA’) in conjunction with the