HSBC 2009 Annual Report Download - page 258

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Market risk > Sensitivity of NII / Structural FX exposure
256
‘Summary of significant accounting policies’ on
page 369.
Sensitivity of net interest income
(Unaudited)
A principal part of HSBC’s management of market
risk in non-trading portfolios is to monitor the
sensitivity of projected net interest income under
varying interest rate scenarios (simulation
modelling). HSBC aims, through its management of
market risk in non-trading portfolios, to mitigate the
effect of prospective interest rate movements which
could reduce future net interest income, while
balancing the cost of such hedging activities on the
current net revenue stream.
For simulation modelling, businesses use a
combination of scenarios relevant to local businesses
and local markets and standard scenarios which are
required throughout HSBC. The standard scenarios
are consolidated to illustrate the combined pro forma
effect on HSBC’s consolidated portfolio valuations
and net interest income.
The table below sets out the effect on future net
interest income of an incremental 25 basis points
parallel fall or rise in all yield curves worldwide at
the beginning of each quarter during the 12 months
from 1 January 2010. Assuming no management
actions, a sequence of such rises would increase
planned net interest income for 2010 by
US$695 million (2009: US$463 million decrease),
while a sequence of such falls would decrease
planned net interest income by US$1,563 million
(2009: US$284 million decrease). These figures
incorporate the effect of any option features in the
underlying exposures.
Instead of assuming that all interest rates move
together, HSBC groups its interest rate exposures
into currency blocs whose rates are considered likely
to move together. The sensitivity of projected net
interest income, on this basis, is as follows:
Sensitivity of projected net interest income
(Unaudited)
US dollar
bloc
US$m
Rest of
Americas
bloc
US$m
Hong Kong
dollar
bloc
US$m
Rest of
Asia
bloc
US$m
Sterling
bloc
US$m
Euro
bloc
US$m
Total
US$m
Change in 2010 projected net
interest income arising from
a shift in yield curves of:
+25 basis points at the
beginning of each quarter ..... 13 92 416 112 363 (301) 695
–25 basis points at the
beginning of each quarter ..... (382) (46) (507) (133) (689) 194 (1,563)
Change in 2009 projected net
interest income arising from
a shift in yield curves of:
+25 basis points at the
beginning of each quarter ..... (243) 42 (45) 100 28 (345) (463)
–25 basis points at the
beginning of each quarter ..... 41 (42) (285) (114) (235) 351 (284)
The interest rate sensitivities set out in the
table above are illustrative only and are based on
simplified scenarios.
The figures represent the effect of the pro forma
movements in net interest income based on the
projected yield curve scenarios and the Group’s
current interest rate risk profile. This effect,
however, does not incorporate actions that would be
taken by Global Markets or in the business units to
mitigate the impact of this interest rate risk; in
reality, Global Markets seeks proactively to change
the interest rate risk profile to minimise losses and
optimise net revenues. The projections above also
assume that interest rates of all maturities move by
the same amount and, therefore, do not reflect the
potential effect on net interest income of some
rates changing while others remain unchanged. In
addition, the projections take account of the effect on
net interest income of anticipated differences in
changes between interbank interest rates and interest
rates linked to other bases (such as Central Bank
rates or product rates over which the entity has
discretion in terms of the timing and extent of rate
changes). The projections make other simplifying
assumptions too, including that all positions run to
maturity.
Projecting the movement in net interest income
from prospective changes in interest rates is a
complex interaction of structural and managed
exposures. HSBC’s exposure to the effect of