HSBC 2011 Annual Report Download - page 401

399
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
41 Contingent liabilities, contractual commitments and guarantees
HSBC HSBC Holdings
2011 2010 2011 2010
US$m US$m US$m US$m
Guarantees and contingent liabilities
Guarantees .................................................................................... 75,672 71,157 49,402 46,988
Other contingent liabilities ........................................................... 259 166 – –
75,931 71,323 49,402 46,988
Commitments
Documentary credits and short-term trade-related transactions ... 13,498 12,051 – –
Forward asset purchases and forward forward deposits placed ... 87 30 – –
Undrawn formal standby facilities, credit lines and other
commitments to lend ................................................................ 641,319 590,432 1,810 2,720
654,904 602,513 1,810 2,720
The above table discloses the nominal principal amounts of commitments excluding capital commitments, which are
separately disclosed below, and guarantees and other contingent liabilities, which are mainly credit-related
instruments including both financial and non-financial guarantees and commitments to extend credit. Contingent
liabilities arising from legal proceedings and regulatory matters against Group companies are disclosed in Note 44.
Nominal principal amounts represent the amounts at risk should the contracts be fully drawn upon and clients default.
The amount of the loan commitments shown above reflects, where relevant, the expected level of take-up of pre-
approved loan offers made by mailshots to personal customers. As a significant portion of guarantees and
commitments is expected to expire without being drawn upon, the total of the nominal principal amounts is not
indicative of future liquidity requirements.
Guarantees
HSBC provides guarantees and similar undertakings on behalf of both third-party customers and other entities within
the HSBC Group. These guarantees are generally provided in the normal course of HSBC’s banking business. The
principal types of guarantees provided, and the maximum potential amount of future payments which HSBC could be
required to make at 31 December 2011, were as follows:
At 31 December 2011 At 31 December 2010
Guarantees in
favour of
third parties
Guarantees
by HSBC
Holdings
in favour of
other HSBC
Group entities
Guarantees
in favour of
third parties
Guarantees
by HSBC
Holdings
in favour of
other HSBC
Group entities
US$m US$m US$m US$m
Guarantee type1
Financial guarantees2 .................................................................... 26,830 36,800 29,208 36,800
Credit-related guarantees3 ............................................................. 12,494 12,602 20,228 10,188
Other guarantees ........................................................................... 36,348 – 21,721 –
75,672 49,402 71,157 46,988
1 The balances have been grouped by major category of guarantee, revised from prior periods to present financial guarantees separately.
2 Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred
because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.
3 Credit related guarantees are contracts that have similar features to financial guarantee contracts but fail to meet the strict definition of
a financial guarantee contracts under IAS 39.
The amounts disclosed in the above table are nominal principal amounts and reflect HSBC’s maximum exposure
under a large number of individual guarantee undertakings. The risks and exposures arising from guarantees are
captured and managed in accordance with HSBC’s overall credit risk management policies and procedures.
Approximately half of the above guarantees have a term of less than one year. Guarantees with terms of more
than one year are subject to HSBC’s annual credit review process.