HSBC 2009 Annual Report Download - page 493

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Term Definition
Historic rating transition
matrices (‘HRTM’)
HRTMs show the probability of a counterparty with a particular rating moving to
a
different rating over a defined time horizon.
Impaired loans Loans where the Group does not expect to collect all the contractual cash flows or
expects to collect them later than they are contractually due.
Impairment allowances Management’s best estimate of losses incurred in the loan portfolios at the balance
sheet date.
Individually assessed
impairment
Exposure to loss is assessed on all individually significant accounts and all other
accounts that do not qualify for collective assessment.
Insurance risk A risk, other than a financial risk, transferred from the holder of a contract to the
insurance provider. The principal insurance risk is that, over time, the combined
cost of claims, administration and acquisition of the contract may exceed the
aggregate amount of premiums received and investment income.
Internal Capital Adequacy
Assessment Process (‘ICAAP’)
The Group’s own assessment of the levels of capital that it needs to hold through an
examination of its risk profile from regulatory and economic capital viewpoints.
Internal Model Method (‘IMM’) One of three approaches defined by Basel II to determine exposure values for
counterparty credit risk.
Internal ratings-based approach
(‘IRB’)
A method of calculating credit risk capital requirements using internal, rather than
supervisory, estimates of risk parameters.
Invested capital Equity capital invested in HSBC by its shareholders.
IRB advanced approach A method of calculating credit risk capital requirements using internal PD, LGD
and EAD models.
IRB foundation approach A method of calculating credit risk capital requirements using internal PD models
b
ut with supervisory estimates of LGD and conversion factors for the calculation
of EAD.
ISDA International Swaps and Derivatives Association.
ISDA Master agreement Standardised contract developed by ISDA used as an umbrella under which
b
ilateral
derivatives contracts are entered into.
Key management personnel Directors and Group Managing Directors of HSBC Holdings.
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.
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 A process by which the terms of a loan are modified either temporarily or
permanently, including changes to the rate and/or the payment. Modification may
also lead to a re-ageing of the account.